Productivity Drops in First Quarter

June 2, 2011 8:45 AM, EDT

U.S. workers’ productivity slowed in the first quarter and labor costs rose, the Labor Department said Thursday, as companies boosted employment to meet rising demand.

The 1.8% increase, which was revised from an earlier 1.6% estimate, followed a 2.9% gain the previous three months.

Productivity is a measure of how much an employee produces for every hour of work.

Economists had forecast a 1.7% increase, Bloomberg reported.  Labor costs rose 0.7%, less than the 0.8% forecast.

Among manufacturers, productivity increased at a 6% pace, pushing labor costs down 1.4%.

When worker efficiency improves at a slower pace and labor becomes more expensive, companies may raise prices in order to guard their profits, contributing to more rapid inflation.