We're making more stuff with many fewer workers
The biggest economic news this week isn't that the unemployment rate rose from 9.8 percent to 10.2 percent in October, or that the economy lost another 190,000 jobs, according to the Labor Department. It's that labor productivity for the third quarter rose at an eye-popping 9.5 percent annual rate, according to another report.
Of course both reports paint different parts of the same picture, but the productivity figures are remarkable for what they say about the divergence of hiring and economic output. The government previously reported that GDP rose at a healthy clip in the third quarter. The productivity figures show that was accomplished with even fewer workers than economists had expected. We're making more stuff with A LOT fewer workers, and that's contributing to the high unemployment rate and continuing job losses.
In the long run productivity growth is great. When workers can produce more per hour of labor, their incomes rise, corporate profits rise, standards of living rise etc. Productivity growth kills inflation. Technology-enabled productivity growth essentially explains why Americans are rich and cavemen were poor. A hundred cavemen working for one hour could catch a bison, if they were lucky. A hundred Americans working for an hour can produce a Toyota. (I'm simplifying here and leaving out non-labor inputs like investment and natural resources, but you get the idea.)
But in recent decades corporate profits have grabbed a huge share of the gains from greater productivity, at the expense of workers. In theory profits from productivity growth are supposed to be shared with a company's work force or redeployed in other areas of the economy to employ displaced workers. But it's not happening so far in this recession.
Brad DeLong was shocked at the 3rd quarter productivity numbers and explains why what's going is prompting a rethinking of conventional wisdom.
DeLong:
Back in the 1930s there was a Polish Marxist economist, Michel Kalecki, who argued that recessions were functional for the ruling class and for capitalism because they created excess supply of labor, forced workers to work harder to keep their jobs, and so produced a rise in the rate of relative surplus-value.For thirty years, ever since I got into this business, I have been mocking Michel Kalecki. I have been pointing out that recessions see a much sharper fall in profits than in wages. I have been saying that the pace of work slows in recessions--that employers are more concerned with keeping valuable employees in their value chains than using a temporary high level of unemployment to squeeze greater work effort out of their workers.
I don't think that I can mock Michel Kalecki any more, ever again.
Comments
Or the fact that people are afraid of losing their jobs and many are working far more than 40 hours a week (especially those with salaried positions).
After all, who is going to complain in these economic times for working more than 40 hours a week. The alternative is not having a job.
Posted by: Race | November 6, 2009 9:52 AM
Since the government can't solve the problem, it's time the people start facing unemployment with their own ingenuity:
http://bit.ly/ozqT6
(satire)
Posted by: bondwooley | November 6, 2009 10:40 AM
Thank you for the Kalecki anecdote. I wasn't familiar with him before.
Immediately prior to reading him I was ready to post that the old "norm" of a 5% unemployment rate was being corrected and we would henceforth have an 8% (or 12% depending on who you include) rate.
And while I still suspect this to be true and it will wreak havoc on earnings for twenty years the deeper cause (I suspect) is that we simply have too many people for the too few jobs that are and shall remain available.
Posted by: MrRational | November 6, 2009 10:45 AM
Mr. R: I had never heard of Kalecki either. Of course "Polish Marxist" is not at the top of the economics schools they teach at MIT or Harvard. In theory, "too many people for too few jobs" isn't supposed to happen. People have been worrying about it, however, for at least 20 years. I remember a WSJ leder in the 1980s about the trend, and the lead anecdote was about meter-reader jobs being phased out. The idea was that it's not just manufacturing jobs being replace by technology; now it's service jobs, too.
Posted by: Jay Hancock | November 6, 2009 11:00 AM
"In theory, "too many people for too few jobs" isn't supposed to happen. People have been worrying about it, however, for at least 20 years."
I have been one of those who worried. Mine began 30 years ago with the utter rejection of the highly rational principles of Zero Population Growth.
We have grown 50% more people in the US since 1970 (206M vs 310M when ZPG was first a common discussion) with far too few of us being anything actually productive.
Setting aside the social values arguments of relative worth among subgroups of these "extra" 100 Million... building homes to live in and roadways to drive on and office buildings to shuffle papers in all day long is NOT net productivity nor is most of everything else these 100 Million do all day.
Posted by: MrRational | November 6, 2009 11:48 AM
I too recently read an article that basically said get used to ~10% U3 (U6-the BLS stat using the same methodology as in the 1930's reads 17.5%) as the new norm as there is absolutely no read catalyst to growth anywhere on the horizon. It takes "explosive" growth to get out of this anytime soon. 1983 was followed by 8+% growth that shaved 2.5% off the unemployment rate.
The 9.5% productivity gain is impressive, but it is not contributing to high unemployment. Given that the average work week has held steady at 33 hrs/week, it really questions the value of these jobs to begin with. Anyone who has worked in a large office environment has witnessed first hand the amount of human capitol wasted. I have not had the "pleasure" of working for the government (unless you count my days in the Marine reserves of which I can first hand testify to an inordinate amount of human capitol being wasted) but I have heard stories from those who work at SSA that beg for a John Stossel special report.
Most of our pain comes from too much regulation and too much central planning. Jobs are not hard to create, but valuable output is. Look at the MVA, the SSA, the multitude of state regulatory agencies, the war on drugs filling our prison system and diverting over half of police resources to non violent drug offenders, the imperialistic war in Iraq and you see all examples of central planning waste. Toiling away that makes society no better. Of course you can make an argument in favor of everything I just listed off, but each item also has a cost and the cumulative cost is 10+% headline unemployment with no end in sight.
Posted by: Josh Dowlut | November 6, 2009 3:06 PM
Maybe mothers should return home where they belong and meet their kids for the first time?
Posted by: Joseph | November 6, 2009 9:04 PM