Labor Productivity Shows Strong Two-Year Growth

By SBE Council at 6 March, 2026, 8:51 am

by Raymond J. Keating -

Contrary to what's too often spouted off in the political arena and popular media, not to mention in assorted halls of academia, free enterprise is not an us-vs.-them, a capital-vs.-labor, an owners-vs.-workers system. Instead, free enterprise stands out as a system in which labor and capital, if you will, must work together to succeed. Labor is powerless without investments in technology, tools and facilities, for example, made by business owners, and businesses are powerless without skilled, trained, flexible and hard-working employees.

Among various economic data, labor productivity shows this fundamental relationship between business owners and employees perhaps most clearly. Increased labor productivity, or output per hour, which results from productive investments and undertakings by both businesses and workers, is essential in driving business profits, worker incomes and economic growth forward.

As the U.S. Bureau of Labor Statistics explains, "Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all workers, including employees, proprietors, and unpaid family workers." And as I've pointed out before, the sweet spot for labor productivity is when both output and hours worked increase, but output increases at a more rapid pace.

The data on productivity over the past two years has been a key ingredient to the growth that the U.S. economy has experienced.

According to the latest report from the BLS, in the fourth quarter 2025, nonfarm labor productivity grew by 2.8 percent, with output increasing by 2.6 percent and hours worked decreasing 0.2 percent. While the ideal would be to see labor hours growing as well, still, this is a positive read.

And for all of 2025, nonfarm labor productivity grew by 2.2 percent, with output up by 2.6 percent and hour worked by 0.4 percent. By the way, productivity was strong in 2024 as well, with nonfarm labor productivity growing by 3.0 percent, as output increased by 2.9 percent and hour worked were essentially flat.

That 2024-2025 two-year experience was the best two-year performance - outside of recession or pandemic distortions - since 2005 (a strong run from 1998 to 2005). Also, the average gain over the past two years of 2.6 percent ran ahead of the post-WWII-era average of 2.2 percent.

Looking ahead, labor productivity, and profit, income and economic growth, will be tied to private sector investments made in technology, tools, facilities, skills and education by both businesses and individuals.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He is the author of " The Weekly Economist " book series, and 10 Points from Walt Disney on Entrepreneurship .