There are times when what is bad news for companies is good news for workers. This may be one of those times.
The bad news for businesses is that productivity gains are slowing. The U.S. Bureau of Labor Statistics reported that productivity at non-farm businesses, or output per hour of work, rose only 0.3 percent in 2011. Output rose 2.3 percent over the year, but hours worked went up almost as fast, at about 2 percent.
Companies are simply not getting as much out of their reduced workforce as they did immediately after the recession. U.S. worker productivity rose at an annual rate of 2 percent and 5 percent in 2010 and 2009, respectively.
Economists watch productivity closely because it is the key to raising our living standard over the long run. Incomes in the United States have doubled about every 35 years. We have a much better standard of living than our parents and grandparents.
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These gains are because of large increases in productivity. An hour of work today produces much more in goods and services than it used to because we have more capital equipment to work with, like computers, and companies have improved their production processes through just-in-time inventory management and other factors.
The current slowdown in productivity may be good news for the labor market. The unemployment rate in the United States currently stands at 8.2 percent, down from more than 10 percent at the height of the recession. Idaho’s unemployment is below the national average at 8 percent.
Meanwhile, the economy continues to grow. The Bureau of Economic Analysis reported that U.S. gross domestic product increased at 2.2 percent in first quarter of this year. A key driver of this increase was a 2.9 percent increase in consumer spending over the same three months.
If employers are only getting small productivity gains out of their current workers while consumers are spending and the economy is growing, they will soon be forced to increase hiring. Unfortunately, no big plans are in the works.
The National Association of Business Economists (NABE) reported in late April that only 39 percent of firms expect hiring will pick over the next six months. This is up from 27 percent in a January report from NABE, but still too low to have much effect on the unemployment rate.
A possible explanation for this is found in the same report. Only 15 percent of the businesses surveyed for the report expect the economy to grow faster than 3 percent over the next year. Overall demand in the economy is simply not strong enough. Normally, the economy grows at 4 percent to 6 percent following a recession.
The slow growth outlook is not likely to be resolved until many political questions are answered. An uncertain outlook for taxes and other political issues is holding back many business owners.
The National Federation for Independent Businesses, a small-business advocacy group, found that 72 percent of small business owners would like to expand over the next few years by adding employees, but cite economic and political uncertainty as an impediment.
Big productivity gains are becoming hard to find so companies are going to need more workers.
But don’t expect this bad news for business to become great news for workers any time soon.
PETER CRABB Professor of finance and economics at Northwest Nazarene University in Nampa