Waiting in line to pick ingredients for your burrito could be doing more economic damage than you think.
Earlier this week, the Bureau of Labor Statistics reported that productivity had dropped 3.1% in the first three months of the year. That was a much bigger decrease than the 1.9% the BLS had originally estimated. And combined with the last three months of 2014, it’s the worst six-month stretch for productivity in more than 20 years, since the first half of 1993.
That could be bad news for an already weak recovery, which slowed in the first quarter. Productivity is a key component to hiring and profits. If employers are getting less output out of workers at a time when wages are rising, that will mean lower profits for U.S. companies, and it could then lead to less hiring.
If you look at the chart above, it appears that productivity does tend to slow toward the end of economic expansions. For example, productivity dropped in 2008 and early 2001.
At times, lower productivity can be a good thing. It can force employers to hire more workers, or invest in technology or other things that can boost economic activity. The drop in productivity in 1993, for example, came at the start of an economic expansion and at the beginning of the first wave of investment in the Internet. Whether it will be the case this time around, like everything else, depends on whether the economy is improving.
Productivity has been lumpier this time around than in past recoveries. It snapped back in 2009, but it has been slowish ever since. If that continues, we could have a problem. That could result in lower long-term growth, and less prosperity. In general, higher productivity leads to a higher standard of living.
Economists are not quite sure why productivity may be slowing. It could be that the gains we reaped during the tech boom of the 1990s and 2000s are finally winding down. Dean Baker, an economist at The Center for Economic and Policy Research, thinks it’s a cyclical thing. The fact that wages have mostly remained low means that employers have not had to economize when it comes to workers. Baker also points out that amid all this talk of robots taking our jobs, a drop in productivity probably means that’s not happening.
But there could be another reason for the productivity plunge: Chipotle.
Restaurant services has been one of the areas of the economy where productivity has dropped the most. That decrease has taken place at the same time that sales at Chipotle and other so-called fast casual restaurants have taken off. That’s what the chart above shows–productivity verses the recent jump in sales at fast casual chains. Could Chipotle be slowing all of us down?
Perhaps not. These two trends may be taking place at the same time, but that doesn’t necessarily mean that one is causing the other. And just because it takes longer to get a customized burrito than a Big Mac shouldn’t necessarily lead to a drop in productivity, as long as people are willing to pay more. Productivity is measured in economic output, not individual meals.
But perhaps the weak economy hasn’t allowed prices to rise as much as they should. And Baker says there are lots of improvements that productivity doesn’t pick up. So Chipotle may indeed be boosting our standard of living, even if economically it doesn’t look that way.
Graphics by Stacy Jones.