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Jan 17
2011

The upside of high unemployment

Posted by Stephen Taub in unemployment rateunemploymenttemporary workersproductivityfreelancerscontract workersConference BoardCashCareers/Management

Stephen Taub

So, here is the upside to stubbornly high unemployment and slow job growth.

US labor productivity surged to 2.4 percent in 2009 and 2.8 percent in 2010, according to The Conference Board. This compares with just 0.8 percent in 2008.

Globally, labor productivity growth in 2010 climbed to 3.3 percent, up from minus 1.2 percent in 2009. "A 1.5-percent increase in job growth was accompanied by 4.8-percent growth in global output," points out The Conference Board in a new report.

What exactly is labor productivity? It is measured as output per hour. So, if a company can grow its company without adding workers, presto, its productivity goes up.

And this is what has been happening for the past two years even though the economy spent part of that time in a recession and the rest of the time slowly digging its way out, albeit at a slow pace.  

So, is the party over if the unemployment rate continues to fall and companies starting hiring again? Not necessarily.

Sure, productivity will come down a bit as the cyclical effects of the recession abate, especially given that economies saw an above-trend recovery in labor-productivity growth in 2010, The Conference Board asserts.

It sees the global productivity rate slipping slightly, to 2.9 percent in 2011. This will result from 4.3 percent output growth and 1.5 percent employment growth. "Given that a fair amount of 2010's productivity and employment growth reflects a typical post-recession boom, it is all the more striking that global productivity growth is projected to be only slightly lower," the trade group states in its report.

The story in the US may be a little different. The Conference Board expects the US economy to remain on a relatively slow growth path, with GDP growing at 2.5 percent in 2011. As the labor market continues its gradual recovery, with an expected growth in hours worked of 1.4 percent in 2011, the conference Board predicts labor productivity growth will rise at 1.1 percent, below its long-term trend of about 1.5 percent.

Still, it seems to me there are a number of forces in place to keep productivity growth at a healthy rate. Many companies are hiring new people at a very slow, measured rate. At the same time they have learned how to balance their needs more with freelancers, contractors, temporary workers and part-timers, as well as better use of technology.

In fact, one can argue that the stubbornly high unemployment rate is due, in part, to panicky companies laying off more than they needed to when the global economy was melting down in 2008, but have been slow to replace those "extra" workers they fired due to near-depression fears.

Also, existing employees have learned-okay been forced-to shoulder more work at virtually the same salaries for the past few years.

But, ultimately, as the economy recovers and companies ramp up hiring, productivity growth will fall, maybe precipitously. Which is not necessarily a bad thing.

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