Dean Baker\’s normally better than this

By contrast, next to no one knows that productivity has increased by almost 10% since the start of the recession.

Well, quite a lot of people do actually, for we always expect productivity to rise in a recession.

The other reason that workers have not seen much benefit from the 10% rise in productivity over the last three years is the recession. As a result of the recession, the economy is operating well below its potential level of output.

It is the recession, yes, but not because of that lack of supply thing.

Labour productivity is measured by comparing the value of what is produced with the number of hours of labour it takes to produce it. Note that it is not measured using the total number of hours of labour available, but the number of hours used.

So, in a recession, some people get laid off (or, if we\’re to be more accurate, the layoff rate doesn\’t move all that much, it\’s the hiring rate that falls, thus leading to an increase in hte number that are unemployed, but the efect is the same for our purposes here).

Who is it that\’s likely to get laid off/not hired if laid off?

The least productive workers.

At least, as long as employers aren\’t stark staring mad this is going to be the case. Assuming that you can actually identify who is more productive than another (at the gross scale this is not too hard, that bright, educated, well referenced guy over there is likely to be more productive than that just out of jail drug addict over there) then those who are more productive are going to be those hired first. And when there\’s a shortage of jobs, the less productive wil not get hired at all.

Thus, as a result of the way that we measure productivity (recall, only using the numbers from those actually in work) we find that productivity rises when unemployment does.

Similarly, we\’re also likely to find that as unemployment falls, productivity growth will also fall.

We can even see this effect in cross country comparisons: famously, the French productivity rate per hour worked is higher than the UK one. The French unemployment rate has also been rather higher than the UK one for years as well: one explanation is that in France the unproductive don\’t get a job at all, while in the UK they do, but this brings down the average productivity per hour worked.

And, as Dean Baker himself has pointed out to us, in this current recession, as US unemployment has risen to 9%, the U6 rate (including those discouraged from even being in the labour market at all) has risen to 16% and above, then the US productivity rate per hour worked has approached that of France.

Because, we might assume, those less productive people are now doing nothing rather than something and bringing the average productivity rate down.

As I say, Dean Baker\’s normally better than this.

1 thought on “Dean Baker\’s normally better than this”

  1. But output decreases in a recession, while fixed costs remain well…fixed. So there is another force in action here.

    Its why some firms see negative TFP growth at times, as though they’re choosing to be less profitable, which is very unlikely.

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