Go on over to this truly interesting post at a Canadian econblog:
Okun’s Law tells us that labour productivity, crudely measured as GDP/employment, and ignoring subtleties like hours worked and quality of labour, normally falls in a recession. Because the percentage fall in GDP will be two or three times as big as the percentage fall in employment. And it did fall in all the other countries. But in the US it didn’t fall at all. Labour productivity actually increased. GDP fell a little over 4%, peak to trough, and employment fell nearly 6%, so the GDP/employment ratio increased by over 1%.
The US is an even bigger puzzle if you think that business cycles are caused by productivity shocks. Sure, you could always argue that US firms and workers were expecting even bigger productivity growth, so when it actually came in at only 1%, that was a negative shock to productivity. But you would have to work hard to convince me that that’s plausible. And what were all the other countries expectations for productivity growth — chopped liver?
Why did US productivity increase during the recession? Why doesn’t your explanation also apply to the other 6 countries?
Why is the US an exception?
Over the last few months I’ve presented a host of explanations for why this might be including the consequences of high levels of corporate bureaucracy and demographics. I think that demographics remains the most likely answer.
Let me suggest a few other possible others. Is it possible that in an environment of nearly free and virtually instantaneous communication and highly portable means of production that Okun’s rule of thumb no longer holds? Is it possible that there’s something wrong with the way we’re calculating GDP and that the U. S. for reasons of scale, differences in the structure of our economy, or what have you reflects that while no other country does?
Are there others?