Sunday, August 10, 2003

Good stuff from Barry Ritholtz, a commentator at Brad DeLong's blog site.
This is the "New Productivity Paradox."

We are confronting the dark side of productivity: Companies need less laborers to produce more goods and services; Less workers means less consumer spending, lowered tax receipts, weaker corporate profits -- a not-too-virtuous cycle. Consider:

-Since 1995, labor force productivity has been increasing at least 2.25% per year, double the annual rate of the previous two decades.

-At the same time, the labor force itself is growing at ~1.3% per year.

-Real GDP has to increase at 3.5% per year just for the economy not to hemorrhage any more jobs.

One of two things will needs to occur for job growth: Either GDP must improve dramatically, or productivity gains must tail off, if not reverse. If neither of these events occur, the U.S. could continue to lose jobs at a disturbing rate.
Maybe it's time to quote Marx on the "reserve army of the unemployed" about now?

On the same theme, DeLong opines
this business cycle has been different. There was no sustained decline in productivity growth during the recession--there was little if any labor hoarding, and thus little slack of employed-but-underutilized labor to fuel rapid productivity growth numbers as the recovery begins. But it is very hard to look at the figure and think that we are still in the long productivity-growth slowdown period that began in the mid-1970s.
What piques the General's interest is not the post-1995 secular trend in productivity, but instead the huge take-off since 2000. My suspicion is that the secular trend is mostly due to technology, but the post-2000 spike is mostly due to work speed-up.

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