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When bad economic news is good news

Productivity growth slowed from more than 6 percent during the final three quarters of 2009 to 3.6 percent during the first quarter of 2010. Generally, you want productivity growth to be as high as possible, but this is actually good news for the labor market. In the context of the recession, the weirdly high productivity growth meant that scared, overstretched workers were producing much more than they had before the recession, freeing employers from the need to hire new workers to increase their productive capacity. With productivity falling back to earth, employers will actually need to hire new people to keep up with demand, which means, well, hiring new people.

By Ezra Klein  |  May 6, 2010; 12:24 PM ET
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With productivity falling back to earth, employers will actually need to hire new people to keep up with demand, which means, well, SHIPING MORE JOBS OUT OF AMERICA. Where do you think all these productivity gains are coming from?

Posted by: obrier2 | May 6, 2010 12:54 PM | Report abuse

Good news for the labor market is NOT the same as good news for the economy as a whole. It would be terrific news for the labor market if email was banned, as we'd have to hire millions of people to deliver snail mail. But that would be awful news for our economy, as productivity gains are the true lifeblood of rising standards of living.

Posted by: MDA123 | May 6, 2010 2:02 PM | Report abuse

Um... I'm not hearing many businesses talking about hiring; instead, I'm hearing many businesses purposely slowing production in an attempt to extend business lifespan. I can think of a good metaphor, but won't use it.

Quoting the article, "Companies' unit labor costs - which measures their hourly cost of production - fell 1.6 percent. [...] The trend indicates wage pressures remain scant." So, there is growing evidence that the higher wages anticipated by PPACA budget estimates are not materializing. In mid-September, companies will be forced to select the best, most productive employees and, due to higher taxes, will be forced to cut others.

All in all, I'm not sure that adding only 444,000 more full-time jobseekers to the unemployment roles is reason to cheer: the number of people who are no longer full-time jobseekers -- the long-term unemployed -- continues to rise at an alarming rate.

Posted by: rmgregory | May 6, 2010 2:54 PM | Report abuse

bwhaahaaaa. wow, i hope this is posted in jest. otherwise we can just outlaw all automation, drive productivity way down and we can return to an agrarian economy where everyone is employed. seriously, Ezra, seriosuly?

Posted by: matty7 | May 7, 2010 11:23 AM | Report abuse

This just goes to show how common and pernicious the "Broken Window Fallacy" remains in mainstream circles.

Posted by: melizcrazy | May 7, 2010 1:40 PM | Report abuse

Error in logic, Ezra.

Lower productivity means lower revenue, lower profits, and less money to hire more employees. What if a company needed 1000 workers instead of 100 to create it's good, but could only sell it's good at the same fixed price? The company would not hire 900 more workers, but would instead have go out of business (or reduce salaries to 1/10 the original). Now nobody has a job and everyone is poor.

Productivity is the lifeblood of the economy and the standard of living for its workers.

Posted by: nimitz1202 | May 7, 2010 3:07 PM | Report abuse

The productivity statistic will go up when labor decreases even with no additional effort; because the proportion of output produced by capital vs. labor increases. If you have 1 machine and 2 employees; each entity makes one widget for a total output of three. You then fire one employee, you now produce 2 widgets, one from the remaining employee and one from the machine. Your remaining employee's productivity has increased 33% the way this statistic is calculated.

Posted by: gregjungman | May 7, 2010 10:29 PM | Report abuse

Ezra's entry here reminds me of a story that I once heard which may be apocryphal.

During the days when Mao was in charge, a famous western economist was visiting China. The economist was watching a large group of workers building a dam with shovels. The economist asked a local communist party leader why they weren't using a bulldozer and the party big shot responded that they wanted higher employment. The economist replied that if it is employment that they are concerned with, why not use spoons instead of shovels.

Ezra's reasoning here is in line with the communist party leader's logic.

Posted by: Marecha | May 8, 2010 11:18 AM | Report abuse

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