Sunday, February 19, 2012


There aren’t many good things that resulted from the Great Reccesion, but lasting productivity gains might be one of them. America’s labor productivity, defined as output per worker, has soared since 2008. There are a number of reasons for the improved numbers. One is that companies have laid off the worst performing people. Productivity is measured by output per worker, not output per person. When the recession hit in 2008, American companies cut the least effective employees. These unemployed people are not a factor in labor productivity statistics. While it is sad for the people that lost those jobs, most will go on to receive training for a new position or will find a job that better matches their existing skill set. Millions of jobs in the U.S. go unfilled each year because firms can’t find workers with the right technical know-how. Unfortunately, the process of training and job placement can take a long period of time.

Another factor of rising productivity is directly related to the scarcity of jobs in the economy. Employees are so scared they might be fired that they are working harder, skipping breaks, and not complaining when asked to take on new duties.

During the downturn, companies strove to improve processes. Simple things that might have been overlooked during the good times were suddenly under scrutiny. This drive to improve processes has led to a rapid implementation of what some economists call the “democracy of ideas.” The phrase simply refers to any kind of framework that allows good suggestions, whether they come from top management or entry-level associates, to be quickly incorporated into a company’s way of doing business. The fact that many middle management jobs were cut over the last couple of years may have made this implementation easier than it would have been otherwise.

In the short-term, productivity gains can be bad for workers because corporations need fewer people to produce the same number of goods. In the long-term, though, workers can only benefit from American corporations becoming more profitable, since those corporations will have the money to invest in innovative products and have the resources to compete globally. There is a lot of evidence in the marketplace that supports this theory. Over the last number of years, for example, American companies have been doing very well financially (the NASDAQ has hit an eleven year high and Barron’s, the financial investment magazine, has predicted DOW 15,000 within two years) but hiring overall has lagged. In January, however, unemployment dropped to 8.3 as employers have steadily added about 200,000 jobs a month over the last half year. With the continued rise of many developing countries, newly aggressive American firms have had a leg up on their European and Japanese couterparts. This will result in many new jobs for a lean (and mean) American workforce.
- Read more about it here: The Economist