February 7, 2009

HIRING IS A SOCIO-POLITICAL PHENOMENON AS OFTEN AS AN ECONOMIC NECESSITY:

Political Economy: Audacious Efficiency (John Cranford, 2/07/09, CQ)

One of those sources of strength showed itself last week in a little-watched and not particularly well understood Labor Department report on worker productivity. In short, despite the recession, productivity surged in 2008 after slumping for three straight years. And the upshot is that many companies may have done what’s needed to survive in the current environment by staying ahead of the debris falling around them.

Productivity is the miracle drug of the U.S. economy, the closest thing we have to money that grows on trees. Calculated as the rate of change in economic output per hour, productivity measures the change in the relative efficiency of the workforce. Simply put, if less labor is used to produce more goods and services, it’s easier for everybody to be content. Company profits can rise; employers can pay their workers more; and prices paid by consumers can stay lower. Conversely, weak or declining productivity is a killer.

The United States has perhaps the most productive economy in the world. Since the end of World War II, our efficiency has increased on average more than 2 percent a year, a rate of increase that means together we produce roughly four times as much today as we did back then with the same amount of labor.

Given the ups and downs of economic activity, it shouldn’t be a surprise that some years have been better than others. Still, the trend has been long stretches of big productivity gains — interrupted by periods during which we were considerably less efficient. These happier times were particularly evident during the 1950s and 1960s and most recently from the mid-1990s through the mid-2000s.

There has been a worry that the gains of the recent past might be giving way to yet another slow time — that perhaps U.S. companies have tapped the last drop of benefit from tiny and fast computers, the Internet, improved communications, and whatever synergies all that technological advancement has given us. But the bigger-than-average 2.8 percent productivity increase in 2008 suggests that reports of productivity’s demise may have been premature.

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Posted by Orrin Judd at February 7, 2009 7:52 PM
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