Ever since the 2000 crisis labour has been abundant. So we can't even use the labour capacity we have (not enough jobs for everybody). But that is one perspective. It very much depends on viewpoint even here. On one hand Obama and the government are lying : there certainly aren't enough jobs to go around, and so many people are desperate for work. They do tend to "have work", so the government is not technically lying, but they have part-time jobs that they would very much like to replace with a full time job.
A simplification that has been valid for pretty much the entire 20th century has been that a given labourer has a given productivity. So I assume that if we have 2 young people for every 1 old person or child, for example, that the economy would work to make that actually happen. This is not guaranteed, of course, but historically this worked.
As for the productivity measure you mention, that's not what I've seen in the data. Productivity measurements rose for most of the 20th century, then flattened across the world starting around 1985 or so. There has been little to no productivity rise in the US since 2000, and most of the world is worse off, with the notable exception of China and some smaller parts of Asia.
Lack of inflation rises are masked more than a little bit by government fudging. By the inflation measures of the 1980s we've consistently seen 3-4% inflation in Europe (except in the south). The measure currently used in the US is called "PCE deflator". You should look up why it's called that.
