The news that productivity was up 9.5 percent in the third quarter, while employment remains depressed, has made some people understandably worried. Yes, it's true: businesses have found ways to wring more output out of each worker, so they don't need to hire as much, at least for now. So productivity does partially explain why employment gains lag recovery. But some people are taking this point way too far. Example:
Having suppressed wages for decades, now employers are suppressing jobs. Workers are not only making do with less -- they're working harder than ever, and there are no new hires, because fewer people seem to get the job done just fine.
The US economy has lost some 10 million jobs since the recession began. Do you really think those 10 million jobs are coming back? It seems to me, the war is far from over and the spoils are just beginning to mount.
I can say with pretty high confidence: Yes, those 10 million jobs are coming back. To believe otherwise is to believe that the U.S. economy is done with the whole "economic growth" thing. But it might take a long time for them to come back. Higher productivity, however, will be helping those jobs come back, not hurting.
In the short run, higher productivity does suppress hiring. But in the long run, the extra resources the private sector has thanks to that productivity make job growth possible. Gary Becker explained recently on his blog.
Yet over periods more than a quarter of a year or a year, even rapid productivity growth has usually gone hand in hand with growing, not declining, employment. The Internet is providing many jobs, some for reporters who formerly worked at newspapers and magazines. The high tech sectors of Silicon Valley and elsewhere have become major employers of programmers, software engineers, salesmen, and many others. Large growth in employment has also occurred in the biotech field, and the health field more generally, and at other new industries. So while productivity of the global economy increased rapidly during the past century, and also during the past 15 years, world employment also rose rapidly during the past century, and during the more recent period, and world unemployment rates declined rather than increased during both periods prior to this worldwide recession.
I'm not saying that a quarter of a year to a year from now, we are guaranteed to see massive increases in employment. But if we don't, it will be because some other factors—not productivity—are keeping employment down.