The above presents the first finding resulting from this initial effort to develop productivity indices. It tells us that, in the measured sample, productivity per man-year increased by 7.7 percent--or at an average annual rate of 1.9 percent--between fiscal year 1967 and 1971.1

This resulted from the fact that while output increased 10.3 percent, man-years applied went up only 2.5 percent. An analysis of the overall index has been made using labor costs instead of man-years. The analysis shows:

--Gross labor costs in current dollars increased

43.7 percent between fiscal year 1967 and fiscal year

1971.

Detailed data by year appears in appendix H.

20

--Unit labor costs in current dollars increased only
29.5 percent, reflecting the impact of productivity
improvement.

--Unit labor costs in constant 1967 dollars dropped
7.1 points to 92.9 percent.

These trends are graphically illustrated in exhibit 2-6 below.

The above findings show that if the productivity gain had not occurred, 119,000 more man-years would have been required in fiscal year 1971 compared to fiscal year 1967, worth in current dollars about $1.3 billion.

These overall findings pose the question of what has produced this productivity improvement, and whether it can be perpetuated in future years. This is the purpose of the additional analyses discussed below.

Trends in Productivity

By Pay Systems

Exhibit 2-7 displays the productivity trends when the 114 organizational units are separated between those where the employee content is preponderantly:

--Wage Board--our sample contains approximately 254,000 employees, or about 48 percent of all wage board employees in fiscal year 1971.

--General Schedule -- our sample contains approximately 583,000 employees, or about 45 percent of all GS employees in fiscal year 1971.

These analyses reveal that in both pay systems the reason for improved productivity is increased output with (1) a level man-year expenditure in the case of GS employees, and

(2) a sharp decrease in man-years applied in the case of wage board employees. 1

As will be indicated in other analyses, the greater gain in productivity in the wage board category would appear to be attributable to:

--The more rapid adjustment of wage board manning to
workload fluctuations.

--The greater opportunities to apply labor-saving equipment to these activities, which are heavily industrial in type.

This observation also calls attention to the need to collect data on capital costs related to productivity changes so that "total factor" productivity indices can be developed in future years.

Trends in Productivity

By Functional Grouping

The functional indices indicate other factors which influence productivity.

As described above, functional classifications were developed based upon (1) public services, (2) support services, and (3) industrial activities. Exhibit 2-8 below portrays the trend in output, man-years, and productivity per man-year for these three broad classifications during the period fiscal years 1967-71.

1Detailed data by year appears in appendix H.

The highlights illustrated by the above graphs are:
--With respect to output, we find three different pat-
terns. Public services have shown a steady upward
increase, and it is probable that this will continue
to be the trend since this area embraces population
related activities such as the Postal Service, and
social programs. By contrast output in the Govern-
ment's internal support services has tended to fluc-
tuate in a narrow range; while the workload in indus-
trial activities has begun to decline after a major
increase in 1969. The latter reflects the reduction
in Defense logistical workloads.

--With respect to man-years applied, only the public
services show a steady increase, while substantial
decreases have occurred in the other two areas.

--Productivity per man-year follows directly from the
above trends. The smallest increase occurred in the
public services (5.1 percent), and the largest in the