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Interesting chart don\’t you think?


Nicked from AEP.

So, can you identify the point on that chart where US eligibility for unemployment benefits was raised from 26 weeks to 99 weeks?

Another interesting bit:

A new twist is an apparent decline in the \”employment intensity of growth\” as rebounding output requires fewer extra workers. As such, it may be hard to re-absorb those laid off even if recovery gathers pace.

This is also called \”rising productivity\” and while it does cause problems in the short term, as above, is generally considered to be a good thing.

Now, stepping well off my reservation of actually knowing anything and moving to the realms of speculation, this is one of the few things about today which can be directly compared to the 1930s. For the 30s saw one of the biggest advances in labour productivity ever. High growth rates (8% for the US in 35, 36 for example) didn\’t lead to the expected falls in unemployment. Some, yes, but not as much as would have been expected.

And to some extent at least (and I find it curious that real economists tend not to really discuss this) a part of (I would argue a goodly part of but as I\’ve already said, I\’m in the realms of speculation here, not knowledge) that lovely high post war growth was caused by those productivity increases in the 30s. For what increased productivity means is that if, as and when, the economy returns to full employment then the production frontier has been expanded.

If we can get more out of each labourer\’s labour (which is just another way of saying increased productivity of labour) then when we\’re using all the labour production will be higher (which is just another way of saying increased GDP).

So, if it is true that there is a declining \”employment intensity of growth\” then we might be expecting a huge global boom sometime in the 2020s. Hopefully we won\’t need a World War between now and then.

At a deeper level, what might be causing this rising productivity? Well, there are those who point to the 30s as the time of two huge changes. The final death of large scale employment in agriculture as it was mechanised plus the effect of electricity and the production line (Ford might have been the first in 1913, but it takes time to flow throughout industry) on manufacturing.

Today? The likely culprit is digitisation and the internet.

And yes, there is a policy implication here. If productivity is rising swiftly, and as a result we\’re going through a large sectoral shift in employment, then whacking up aggregate demand to get everybody back to what they were doing three years ago doesn\’t in fact help matters. It\’s even possible that we\’d be better off doing absolutely nothing and allowing the \”recalculation\” to get on with itself.

But I agree, this is speculation, not an ex cathedra pronouncement from an expert.

5 thoughts on “Interesting chart don\’t you think?”

  1. Could the recession itself not be a reason for productivity growt?

    When times are good, managers spend very little time wondering how to improve productivity. When times are hard, they are forced to confront the reality of doing the same work with less workers.

    The potential of internet and other technology has not really been used to the extent that it could (economy wide, some companies are doing amazing things), with so much money spent on doing things in the same way, but with fancy new technology. Now that expenditure on IT has to be shown to be necessary, we will actually be forced to use it to drive down costs, not on expensive vanity projects.

    I hope you are right about a boom in the 2020s. It would help my final years of saving for retirement.

  2. Purely speculation but TW’s analysis rather assumes that increased productivity might decrease unemployment but as Major Douglas pointed out yonks ago the increased use of machines rather breaks that link.
    The present system does n’t really admit there is any technological /Luddite unemployment but I know two photographers whose careers were terminated by improved technology.
    Perhaps Douglas’s National Dividend
    could repair the gap in wages as a share of national income whereby wages can’t keep up with all the stuff produced?
    I should imagine that this would involve the complete nationalisation of the banks-no bad thing IMO.The sky has n’t fallen in after the first steps in that direction taken by Brown.

    Tim adds: “TW’s analysis rather assumes that increased productivity might decrease unemployment”

    It does? And there I was thinking that I’d assumed the opposite in the short term. That increased productivity might decrease employment.

  3. To be fair, Tim, the increase to the eligibility criteria may be a symptom of high (and long-period) unemployment, rather than a cause.

    Tim adds: Indeed, it could be. Which is why economists try to tease out which way round the causation goes. And there’s an awful lot of people out there who seem magically to get jobs just as their eligibility for benefits ceases.

    No, that’s not the whole cause, of course, but it is part of it.

  4. “So, can you identify the point on that chart where US eligibility for unemployment benefits was raised from 26 weeks to 99 weeks?”

    I’d guess in 2002? Then the economy is out of recession but unemployment duration keeps rising?

  5. The problem with your argument here is that ‘decreasing employment intensity of growth’ hides other factors which are arguably more relevant in determining whether this near-term increase in unemployment does presage a long-term fall. Specifically, the transition from agricultural labour to industrial labour only required a relatively low skill base, while the transition from industrial labour to what you could call digital labour requires a transition from a low skill base to a high skill base. ‘Letting people get on with it’ might not be the appropriate policy response in this situation.

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