Productivity and the Jobs Crisis: Cause or Cure?

Ann All

Is productivity ever a bad thing? Employers seemingly can't get enough of it, judging by all of the articles published here at IT Business Edge and elsewhere that offer tips on making workers more productive.


But you have to wonder if R. Lawson, who commented on a blog post I wrote last week about automation's impact on jobs, isn't on to something. He wrote:


We are way too productive. We either need to create more work, or we need to be less productive. Or we could do both.


"Sounds strange saying that," writes Lawson. But I don't think it sounds strange at all. As columnist Andrew S. Ross notes, U.S. productivity grew a strong 6.6 percent in 2009's second quarter. While that'd normally be a positive, the productivity growth is a negative considering it occurred in the wake of rounds of layoffs at many companies, which have left 10.2 percent of the American workforce without a job.


Ross quotes the Financial Times' Krishna Guha, who recently wrote that "efficiency gains can provide an alternative to hiring." Despite weak revenues, companies have preserved their profits. Add the growing use of automation (sound familiar?) and Guha says you get "an unusually high proportion of so-called 'permanent' layoffs."


Ross also mentions San Francisco Chamber of Commerce CEO Steve Falk's comments regarding the difficulties the city is experiencing in enlisting companies for its federally funded Jobs Now program. Even though the program reimburses 100 percent of the wages paid to a Jobs Now participant, Falk said, "We can't get employers to participate because they don't want to be seen raising the 'we're hiring' flag."


Another possible factor, mentioned by Guardian columnist Tim Fernholz, is companies' uncertainty about the economic recovery. If growth came mostly from the injection of stimulus funds, then it probably doesn't make sense to begin hiring. He writes:


It's still unclear what industry will drive the next American economy, despite hopes that a new green energy industry or revitalized manufacturing can begin the expansion.


Fernholz's suggested solutions: more federal aid to cut state budgets, a jobs tax credit and targeted investments in future industries.


Productivity grew even more in Q3, at 9.5 percent. But that's normal, reports The Wall Street Journal, which notes that productivity gains are historically seen at the tail ends of recessions. These boosts precede hiring increases and wage gains. Or do they? Back in 2007, I wrote a post about some economists' concerns that many of America's recent productivity gains were artificially inflated by the use of offshore labor, which hurts long-term growth prospects. While executive salaries increase when they are rewarded for cutting costs, "regular" workers don't see any benefits.


The WSJ article lists some concerns: Increased regulation of the financial sector could hurt the productivity of some industries. Even more worrisome for the tech sector, companies are also scaling back their spending on new technologies, which have been a strong driver of productivity growth in the past.


Remember R. Lawson, who commented on my post? He suggests the U.S. must balance its trade deficit by imposing tariffs on countries that manipulate their currency, increasing the costs of foreign goods and creating opportunities for domestic manufacturing. Other ideas: Stop exempting workers from overtime pay, which he says will increase the cost of labor and prompt companies to boost hiring. And increase paid vacation time, which will not only reduce productivity but should help the tourism industry.


I'm not sure if I agree with everything Lawson says, but I do think U.S. companies must begin focusing on their long-term futures rather than short-term gains. As General Electric CEO Jeff Immelt said in a recent interview with the Harvard Business Review's Steve Prokesch:


We must end the impression that American CEOs are short-term speculators.

Add Comment      Leave a comment on this blog post
Nov 10, 2009 10:48 AM Ken Ken  says:

Productivity growth is never a negative.  Anyone who says otherwise has been smoking something.

Nov 12, 2009 4:19 AM Anelly Anelly  says:

The thing is that due to economic crisis and the fear of loosing work place, people prefer to work more hours and to give up to their private time.  This can be considered a productivity increasing but I don't think is beneficial for employees and I think will have a bad impact on long term. Employees are risking their health and will manage stress harder. I found this interesting aarticle regarding productivity and crisis:


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