Falling worker productivity statistics after 18 months of gains could be a positive development for job creation and economic recovery. By getting more output from fewer workers, companies that laid off workers during the recession have been increasing their earnings. But the work force may be reaching its limit based on the latest Labor Department report. If that proves to be true, companies will have to start creating jobs to drive the economic recovery they need to keep growing.
Decline in worker productivity gets new meaning
After posting large gains in 2009, the Labor Department said that worker productivity declined at an annual rate of 0.9 percent in the second quarter. Worker productivity is a primary factor in improving the standard of living, according to the Associated Press. Rising productivity leads to higher wages and increased production without raising prices. Declining productivity would be a negative for the U.S. economy in normal times. However, many economists think that high unemployment will eventually hurt companies that have prospered by laying off workers. Because consumer spending accounts for 70 percent of the economy, hiring will create the jobs families need to go shopping. Ultimately, that leads to more customers for those companies.
Companies profit from overworked employees
For companies banking that output would continue to climb without hiring new workers, CNN reports that the new Labor Department report is a wake-up call. At its worst, companies did more with less during the recession. However, the amount of hours worked rose faster than output in the Labor Department report. Companies 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 avoid worker burnout, he said, if for no other reason than keeping employee morale up.
Job creation a must to prevent deflation
Beharvesh told CNN that in the next few months, job creation will likely remain weak. 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. A report from ABC news disagrees, saying that weak productivity, along with other indicators, shows that the economic recovery is losing steam. In the second quarter, the overall economy grew at an annual rate of just 2.4 percent, slipping from 3.7 percent in the first quarter. With the unemployment rate stuck at 9.5 percent, officials at the Federal Reserve are concerned that companies will see the high unemployment rate as an opportunity to push wages down for those who still have jobs, which could start a debilitating cycle of deflation.
ABC News: www.abcnews.go.com/Business/wirestory?id=11364570&page=3
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