Falling worker productivity statistics after 18 months of gains might be an optimistic development for job creation and economic recovery. By getting more output from fewer workers, companies that laid off workers during the recession are increasing their earnings. But the work force may be reaching its limit based on the latest Labor Department report. Businesses could have to start hiring to maintain growth and revive economic recovery if that turns out to be true.
Why declining worker productivity is good news
After posting large gains in 2009, the Labor Department said that worker productivity declined at an annual rate of .9 percent in the second quarter. The Associated Press reports that Americas worker productiveness is the key ingredient to boosting living standards. The increased production resulting from higher efficiency allows corporations to increase wages without increasing prices . In most cases a slip in productivity would be a troubling sign for the United States of America economy. But in this economy, some analysts say that businesses profiting from job cuts will eventually be hurt by the high unemployment rate. If they start hiring, the job creation will give households the income boost they have to increase consumer spending, which accounts for 70 percent of economic activity. Those businesses benefit from more demand for their products.
Companies profit from overworked employees
For corporations that may have believed the Americas had entered a period where output could keep climbing without bringing people back to work, CNN reports the latest worker efficiency numbers are a dose of reality. Companies did more with less during the worst of the recession. But within the latest Labor Department report, the amount of hours worked rose at a faster pace than actual economic output. Businesses probably “overdid it” with layoffs during the recession, said Nariman Behravesh of IHS Global Insight in Lexington, Mass. In the CNN article. Even if it’s just to keep employee morale up, he said, companies may have to hire more to stay away from burning out workers.
Job creation critical to stay away from deflation
Job creation is likely to remain weak for the next few months, Behravesh told CNN. But he’s optimistic that that the private sector may be adding over 100,000 jobs a month by the end of this year and 150,000 jobs a month by the middle of 2011. At the opposite end of the spectrum is a report from ABC News, which said that dropping productiveness is just one more sign the economic recovery is in danger of heading south. Within the April through June period, economic growth was measured at just a 2.4 percent annual rate, down considerably from 3.7 percent from Jan. through March. Some Federal Reserve officials have expressed concern about a punishing cycle of deflation if employers view high unemployment as a chance to drive wages down for those still working.
Further reading
google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD9HGMHAO0
CNN
money.cnn.com/2010/08/10/markets/thebuzz/
ABC News
