I wanted to remark on the observations of economics and business columnist Peter Coy in the New York Times. Noting that the number of people employed is rising while productivity declines he remarks:
In June, the number of people on nonfarm payrolls in the United States increased by 372,000, more than expected. More jobs, more income — that’s positive. Many economists took the Bureau of Labor Statistics report as evidence that the economy is nowhere near tipping into a recession. “An American economy in free fall does not tend to produce 372,000 jobs in any given month,†Joe Brusuelas, the chief economist of the accounting firm RSM, wrote in a note to clients.
What’s not so good is that the economy seems to require so many more workers at a time when its output is actually shrinking. Output of goods and services fell at an annual rate of 1.6 percent in the first quarter of 2022, and it probably fell at a 1.2 percent rate in the just-ended second quarter, according to the G.D.P. tracker of the Federal Reserve Bank of Atlanta.
More people producing less is not a good look, no matter how you squint. Labor productivity — that’s output per hour of work — shrank at an annual rate of 7.3 percent in the first quarter in the nonfarm business sector. Given what we know about jobs and output, productivity probably shrank again, though less, in the second quarter.
Here’s his explanation:
It’s clear now, though, that most of the increase was from a change in the mix of workers. Huge layoffs in leisure, hospitality and other low-wage sectors early in the pandemic skewed the labor force toward workers who earn higher wages and tend to have higher labor productivity (at least as conventionally measured).
The temporary skew in the average skill level of jobs accounted for 71 percent of labor productivity growth in the second quarter of 2020, according to research by Jay Stewart, a senior research economist for the Bureau of Labor Statistics.
Now that all those low-wage workers are coming back, it makes sense that productivity growth would slow down or turn negative.
There’s just one problem with that. It didn’t happen. Here is the St. Louis Federal Reserve’s reportage on non-farm productivity:
Where’s the increase in productivity? What I see is a very noisy curve with periods during which productivity increases, e.g. 1993 – 2000 and 2011 – 2021and periods during which it decreases, e.g. 1983 – 1991 and 2001 – 2008. We may be in a period of decreasing productivity now. It’s too soon to tell. To my eye the broad trend appears down.
Mr. Coy has no explanation for that and I’m open to one. I suspect that long period of increasing business investment produce increasing productivity while decreasing returns to scale, offshoring, and immigration result in decreasing productivity but those are only suspicions. As noted I’m open to an explanation.
Productivity is hard work. I know. I did it in a real live production environment. Further, its risky. Lots of dry holes. But when you win, you win big.
Hiring cheap labor takes out risk. Its brain surgery with an axe, but….
Outsourcing has risks, especially in China, but at the differential in labor costs, well………. See leftist darling Apple.
I’m a free trader at heart. But only a fool keeps reading and reciting the textbook while dying a slow death. We need to wake the fuck up.
I think the long term data needs to also incorporate another issue: the manufacturing to services inherent productivity opportunity. As an economy gravitates to services, notoriously less amenable to productivity increases, you would expect the aggregate statistice to reflect that.