Drop in worker productiveness can lead to job generation

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Aug 13, 2010 5:12 am

Falling worker productivity statistics after 18 months of gains could be an optimistic development for job generation and economic recovery. By getting more output from fewer workers, businesses that laid off workers during the recession are increasing their earnings. But the latest round of worker productiveness statistics from the Labor Department shows that staffs are stretched too thin. Companies can have to start hiring to maintain growth and revive economic recovery if that turns out to be true. Article source - Decline in worker productivity may be good for economic recovery by Personal Money Store.

A new meaning for falling worker productivity

After posting large gains in 2009, the Labor Department said that worker productiveness declined at an annual rate of .9 percent in the second quarter. The Associated Press reports that United States worker productivity is the key ingredient to boosting living standards. Rising productivity leads to higher wages and increased production without raising prices . In most cases a slip in productivity would be a troubling sign for the United States of America economy. However, numerous economists think that high unemployment rate will eventually hurt companies that have prospered by laying off workers. Increased hiring will create the jobs consumers need to increase spending, which accounts for 70 percent of the Americas economy. Those companies benefit from more demand for their products.

Businesses push workers to the limit

For corporations that may have believed the U.S. had entered a period where output could keep climbing without bringing people back to work, CNN reports that the latest worker productiveness numbers are a dose of reality. Companies did more with less during the worst of the recession. But economic output was outstripped by hours worked within the report from the Labor Department. Corporations probably "overdid it" with layoffs during the recession, said Nariman Behravesh of IHS Global Insight in Lexington, Mass. In the CNN article. Companies may have to hire more to keep away from worker burnout, he said, if for no other reason than keeping employee morale up.

Deflation fears underscore need for job creation

Job creation is likely to remain weak for the next few months, Behravesh told CNN. However, he's optimistic that more than 100,000 jobs a month could start materializing in the private sector by the end of the year and possibly 150,000 jobs monthly mid-2011. At the opposite end of the spectrum is a report from ABC News, which said that dropping productiveness is just one more sign that the economic recovery is in danger of heading south. In the April through June period, economic growth was measured at just a 2.4 percent annual rate, down significantly from 3.7 percent from Jan. through March. with the unemployment rate mired at 9.5 percent, officials at the Federal Reserve are concerned that companies will see the high unemployment rate as an possibility to push wages down for individuals who nevertheless have jobs, which could start a debilitating cycle of deflation.

More on this topic

Google

google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD9HGMHAO0

CNN

money.cnn.com/2010/08/10/markets/thebuzz/

ABC News

Aug 14, 2010 12:12 am

Indeed. Traditionally worker productivity peaks at the end of a recession / very beginning of a recovery due to the downsizing of the workforce during the recession. A decline in productivity could very well indicate 'maximum capacity' for businesses at the current employment level. It could also pose a problem if businesses forsee a weakening demand going forward and thus have no use for increased productivity as increased production will not be met with increased demand.

So far most companies this quarter reinforced or raised their full year guidance so I don't think the latter is the case.