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Falling worker productiveness might lead to increasing employment

Job creation and job recovery could get a shot in the arm from a drop in worker productivity. 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 efficiency statistics from the Labor Department shows that staffs are stretched too thin. If that proves to be true, companies will have to start creating jobs to drive the economic recovery they have to keep growing.

Why declining worker productivity is good news

Worker productiveness posted large gains throughout 2009, but the Labor Department said Tuesday it declined at an annual rate of .9 percent in the April-to-June quarter. Worker productiveness is a primary factor in improving the standard of living, according to the Associated Press. It allows businesses to pay workers more because of increased production without raising the cost of goods . In normal times, falling productiveness would be a warning sign for the United States economy. But economists believe the unemployment rate has become a threat to the companies that are slashing their work forces. Increased hiring will create the jobs consumers have to increase spending, which accounts for 70 percent of the United States of America economy. Those businesses benefit from more demand for their products.

Workers sacrificed for corporate earnings

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 the latest worker productiveness numbers are a dose of reality. At its worst, corporations did more with less during the recession. Nevertheless, the amount of hours worked rose faster than output within the Labor Department report. In the CNN article, Nariman Behravesh of IHS Global Insight in Lexington, Mass. said companies probably "overdid it" with layoffs during the recession. He said that if for no other reason than keeping employee morale up, corporations may have to hire more to avoid worker burnout.

Job creation needed to thwart deflation

Job creation is likely to remain weak for the next few months, Behravesh told CNN. He expressed longer-term optimism, nevertheless, saying the private sector could start adding 100,000 jobs a month by year-end and perhaps 150,000 by mid-2011. A report from ABC news disagrees, saying that weak productivity, along with other indicators, shows the economic recovery is losing steam. The overall economy grew at only a 2.4 percent annual rate in the second quarter, down from a 3.7 percent rate within the first quarter. Some Federal Reserve officials worry that with the unemployment rate stuck at 9.5 percent, employers will seize the chance to push wages down for those nevertheless working and prices will follow suit, possibly triggering a vicious cycle of deflation.

Further reading



ABC News

August 18, 2010

Falling worker productiveness might lead to increasing employment


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