Maine Perspective Front Page
According to UMaine Economist
Lagging Productivity Taking the Wind Out of State's Economic Sails
Despite the current rosy economic picture in Maine, the state's economy is lagging behind that of New England and the rest of the United States, according to UMaine economist Jim Breece.
In the article "A Rising Tide Does Not Raise All Boats Equally: The Case of Labor Productivity in Maine" in the newest issue of Maine Business Indicators, Breece says that the current picture of growth in Maine overlooks the indicator of labor productivity.
"Labor productivity is important because it plays a vital role in Maine's ability to compete in global and national markets," says Breece, professor of economics. "Generally, an increase in labor productivity allows firms to lower costs and raise quality. To be competitive in national and global markets, Maine's labor productivity must at least keep pace with that of its competitors. Unfortunately, this has not occurred."
Labor productivity is the measure of output per worker over a given time period, and is measured by dividing annual real Gross State Product by the annual average number of workers. GSP is the value of goods and services that a state produces after accounting for inflation. Growth in real GSP signifies a higher level of production.
The productivity rate in New England rose significantly from about 93 percent of the national average to well over 107 percent. "In other words, New England switched from following the nation to leading the nation in terms of productivity," says Breece. "Maine's productivity, though, is nowhere near the national average."
In Maine, productivity has fallen below 80 percent of the national average since 1992; it is now approximately 77 percent.
Breece says one way to increase productivity is to create more value-added jobs. For example, furniture manufacturing adds value to the lumber harvested in Maine's woods. If the state made the harvested wood into furniture for export, it will reap more economic benefit than simply selling the raw material.
Policy leaders could create more value-added jobs by taking such actions as increasing appropriations in research and development, assisting targeting industry and improving the overall business climate to retain and attract more technology-based businesses, Breece says.
Not all the economic news is gloomy. Some industries, such as furniture and fixtures and paper and allied products, have increased productivity over the last 20 years.
"Clearly, Maine has its shining stars of productive leaders," says Breece. "Maine also has industries that are not maintaining their productive capabilities. If this trend persists, Maine firms may find that they are not competitive in future national and global markets. Additional research is needed on this issue to help identify the causes for this situation."
Breece's article will be in the Winter 1999 issue of Maine Business Indicators. The quarterly publication of the University of Southern Maine contains articles on economic development and analysis, industry studies and economic public policy. It also maintains the Maine Business Index as a measure of changes in the level of state's economy.