August 11, 2009

"Productivity surged in the spring by the largest amount in almost six years while labor costs plunged at the fastest pace in nine years."

Good news, but doesn't it convey a hard truth? People are spurred on by the threat of pain. If you have a job in the time of layoffs, you work harder.


New York said...

People are spurred on by the threat of pain. If you have a job in the time of layoffs, you work harder.

Or that organizations fired less productive employees and reorganized to be lean and mean.

The Drill SGT said...

I was going to make a point like NY's.

In uncertain times, firms put off hiring and increase hours for existing trained staff. This improves productivity till you reach a burn-out point.

similiarly, lots of fixed costs, dont change with hours worked. For example, employee health care costs x amount whether the employee works 35 or 45 hours per week, so in the short term again, you get an increase variable costs (e.g hourly wages) but hold fixed costs (health, dental, facilities, IT constant, thus gain a savings.

And of course, the savings is even bigger if you are just flogging your salaried employes a bit harder :)

The Drill SGT said...

I guess Althouse turned on word verification for Christena's benefit

Ann Althouse said...

Yeah, sorry about the word verification, but the bots were getting worse and worse.

jimbino said...

Productivity went up because the deadwood was laid off. Too bad we can't apply that principle to public education.

Quayle said...

If you lower the denominator enough, which the number of jobs shed has done, it eventually becomes numerically significant.

And burnout for those that remain employed isn't an issue because they can’t easily change jobs.

People will be saying put and tolerating the work load until there are more options.

And it increasingly looks like it will be a while until there are more options, i.e., it will be a slow, gradual climb out of this hole.

Sloanasaurus said...

The conventional wisdom in the markets is now that unemployment is going to be nasty for an extended period of time. The main culprit is the U.S. consumer reducing debt.

Job prospects for those in law school and new grads in general is going to be abysmal for maybe a few years, maybe even a decade. By the time a 1st year law student hits 3rd year, Obama will no longer be their favorite President.

Pogo said...

This measures only non-farm businesses, which excludes the government.

Government labor costs have been increasing exponentially in the past 20 years (even and especially since 2008), and gummint productivity?

Well, does anyone really measure gummint productivity?

john said...

This can work for a little while, where [existing workload] divided by [fewer workers] = greater productivity.

It can even work a little bit longer where [less workload] divided by [fewer more motivated workers] = greater productivity.

But [almost no workload] divided by [the owner] = greatest productivity. This is the state a lot of small businesses are in.

As Drill SGT implied, I suspect some (a lot) of this productivity calculation is heavily skewed by the unfortunate happenstance of dividing by [almost] zero. Not a good situation at all.

New York said...

The conventional wisdom in the markets is now that unemployment is going to be nasty for an extended period of time. The main culprit is the U.S. consumer reducing debt.

A lot of sectors are experiencing secular restructuring due to technology or other factors: Not just finance and newspapers, but also telecom, retailing etc. etc.

Richard Dolan said...

Rising productivity is a measure of labor efficiency. It's better to be efficient that not, but still productivity is not a measure of rising prosperity.

Contrary to Ann's suggestion, I don't think this rise in productivity has much to do with people being "spurred on by the threat of pain." There are reduced opportunities to switch jobs today, which may keep people in jobs requiring them to work harder than they would prefer. But mostly what we've seen is reductions in middle management, RIFs rsulting from consolidations/mergers (e.g., Merrill Lynch into B of A), and the closing of inefficient factories (think GM/Chrysler). It would be different if the reductions in employment were episodic, an employee-by-employee kind of thing. But I think the reality is that it's come about mostly by business units being closed down or merged. That involves less focus on the individual employee (get rid of the least productive) and more on the business unit as a whole.

rhhardin said...

Summary numbers come from statistics which in turn hide all sorts of correlations which don't imply causation.

In this case, probably, it's not deadwood so much that's discarded but rather those jobs which had been marginal and are now money-losing.

Even the most productive job will become money-losing if the economy gets bad enough. It has nothing to do with how hard you work, but rather what you are doing, and whether fixed costs can be covered by declining sales or not.

Is coosi a dirty word? I think so. It wants me to type it in.

Paul Zrimsek said...

The next time you see someone boasting that this or that European country with chronically high unemployment has higher productivity than the US-- that's how it's done.

Those insidious bots have smuggled a Chap-Stick ad into the verification process itself: foryolyp.

Issob Morocco said...

Productivity can be gained by reducing workforce, which has happened, but not workload. Fewer folks doing more things.

It can also come about by having machines replace labor. Same concept as above.

Another way is for equipment and technology allowing processes to be done quicker and more effectively. Think Cell phones and laptops.

In this case the first scenario is driving this, but it paints a picture to those who don't understand the economy and how it works, (someone say like Obama), that this is great news.

If the economy was growing, it would be good news, because expansion would create new opportunities for those folks being replaced by technology or equipment. So the laid off worker finds another job, maybe better than the last or maybe not, but that worker is still productive and overall productivity grows.

In this case, fewer doing more, productivity is providing cover for an economy that is very weak. There are not any hiring expansions coming soon to a marketplace near you. And as such we are now facing what we saw in the late 70's, companies working to keep profitable by putting more on the shoulders of those who stay. When coupled with the labor costs drop, it means even when things do pick up, folks will be starting at a lower standard of pay than they had previously.

You want to get the economy going, cut business taxes, cut capital gains taxes and cut personal income taxes. Anything short of that will just maintain the fallen plateau we now find ourselves scuttling along.

Richard Dolan, love the RIF acronym!

class-factotum said...

Productivity certainly increases when a company cuts vacation time, institutes a hiring and salary freeze, still loses people, and does not lose customers. More (or same) work/fewer employees.

Then you have people like my husband (who works from home) staying up until 6 to work on the software problem for AMD so they will have an answer today. He does not enjoy working all night, but he enjoys being able to pay the bills.

Florida said...

If one - you know - reads the report, one finds this nut graph:

"The increases in productivity in all manufacturing sectors were the
result of hours falling faster than output."

People did not work harder, or produce more. Productivity "rose" only in the weird sense of how the government defines that word.

It's the same as the "unemployment rate" - not to be confused with unemployment.

Unemployment rose ... while the "unemployment rate" as defined by the government, fell.

Larry J said...

Productivity went up because the deadwood was laid off. Too bad we can't apply that principle to public education.

I wouldn't limit the idea to public education. Make it apply to all government employees. "Government worker" is an even bigger oxymoron than "military intelligence."

MaxedOutMama said...

This is a measure of how many people have been laid off, not how productive the remaining workers are. Here is how it is calculated.

Total output fell, but not as much as the workforce was cut. A lot of economists believe this number is a something of a perverse indicator, reflecting more about economic conditions than individual worker productivity.

traditionalguy said...

"Statistics never lie, but Liars always use statistics" said Shakespear or some equally smart dude.

Ralph L said...

Some people haven't gotten the message.
My company hauls wheat by truck to a unionized ADM mill. The workers there make our drivers sit 3-4 hours deliberately, so they can't make a second trip in the afternoon. We pay the drivers if it takes over 2 hours, but they're still furious because they'd get nearly $100 for the second trip. We bitch to the plant manager every year, to no avail.

My word is "ponse", which I think is an insult in England.

Jason (the commenter) said...

I know some people who wanted to get laid off so they could collect unemployment.

Bruce Hayden said...

Well, does anyone really measure gummint productivity?

I would say, of course, you can't measure government productivity. While trite, it is also true.

One big problem with government, and any idea of government efficiency, is that there is no metric against which to measure efficiency. This is also the big reason that government is unaccountable.

And this is a result of there invariably being multiple, typically, conflicting goals for almost any government program. So, if you try to hold an agency to one goal, or one metric, they can, and do, trot out others, equally valid, ones.

d said...

If so, this is not a "hard" truth, it's a beautiful one. It means that hard work is tied tightly to productivity, something that cannot be said of all other places in the world.

John Lynch said...

Recessions serve a purpose. They make the economy more efficient.

Joseph Shumpeter and "creative destruction."

The 1991 recession made the 1990s boom possible.