According to the most recent nonfarm business sector labor productivity BLS data, companies are extracting significantly more output without adding labor, and the gap between what workers produce and what they earn keeps widening.
Nonfarm business productivity jumped 4.9% in the most recent quarter, the strongest gain since early 2024. Output increased 5.4% while hours worked barely moved at 0.5%. Manufacturing showed similar patterns—productivity up 3.7%, the largest four-quarter gain since 2021.
Here's what's actually happening: Companies found ways to grow output without proportionally growing their workforce. That efficiency shows up in margins through falling unit labor costs, which declined 1.9%. Companies paid less per unit of output despite raising hourly compensation 2.9%.
Why it matters for you:
- The retention case for raises: If your industry is seeing similar productivity gains, workers have a legitimate case for raises that exceed inflation. If you're not passing productivity gains through to compensation, you're creating retention risk as workers realize their output is worth more than they're being paid.
- Hiring headcount just got harder: Companies are squeezing more from existing headcount rather than adding workers. If you're struggling to get approval for new hires, this is why—leadership sees productivity climbing and questions whether additional headcount is necessary.
- Wage negotiations changed: When productivity increases faster than compensation, workers have data showing they're producing more value. The 0.3% real wage growth over the past year means most workers took an effective pay cut relative to their output gains.
Source: Bureau of Labor Statistics, Productivity and Costs (Q3 2025, Revised)
Watch this: The disconnect between productivity growth (4.9%) and real compensation growth (0.3%) can't persist indefinitely without retention consequences. Workers producing significantly more while earning marginally more in real terms will either demand corrections or find employers who'll pay for the productivity they've already proven they can deliver.
The contrarian play: While competitors cite "budget constraints" to deny raises despite strong productivity, you can differentiate by explicitly tying compensation increases to productivity gains. If departmental output per employee is up 5% and you're offering 3% raises, you're actually cutting real labor costs while claiming generosity. Workers can do that math.