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Thursday, September 8, 2011

Labor Productivity and the Recession

What happened to labor productivity during the recession?  The data are thought provoking. I created these charts from the International Labor Comparisons data at the Bureau of Labor Statistics.
Productivity by Worker (USD at 2000 value)
Productivity by Hour (USD at 2000 value)

You'll note that either by hour or by worker, productivity falls off sharply after the recession in each case.  Except for the U.S.  The data here do not tell us enough to prove exactly what the cause of the American anomaly was, but other, more anecdotal evidence suggests some answers.  In the case of the European economies, both laws and norms reportedly contributed to efforts to hold on to workers during the recession.  People were put on reduced hours and companies purposely throttled back on production, but companies held on to workers like they would hold on to a piece of expensive equipment, as one Economist article explained it.  While some American companies did this, the anecdotal evidence (there may be some hard data out there, but I haven't looked for it yet) suggests that American corporations were quicker to cut the fat, laying people off while trying to maintain their output.  People, knowing that they were on the chopping block, worked harder and longer.  The bloodletting was also used to restructure in some cases, leading to more productive organizations.  This would explain the difference between the American curves and all the rest.

In a way, this augurs well for the American economy over the long-term.  American productivity continues to outstrip its leading peers.  Yet, it also spells trouble.  This productivity is high value-added, with less and less worker input, especially at the lower end of the skill spectrum.  Fewer workers are contributing to this production, meaning fewer will benefit.  Lower skilled workers are being left behind, as are the growing number of people exiting the workforce.  This presents a significant socio-economic problem.  What do we do with these people?  Let them flounder?  Increase redistribution?  I would argue that the answer lies in producing more higher skilled workers through better educational opportunities.  This takes a long time to make itself felt, though, and you can lead a horse to water, but you can't make him drink, as they say.  America is becoming a much more polarized place, which is not a good thing for our democracy or our way of life.

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