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Higher productivity equals fewer workers working harder

June 21, 2011

The nation is now two years removed from the end of the recession. The economy, as measured by GDP is now at pre-recession levels. We have become accustomed to seeing the economy expanding well before employment picks up after a recession. Employment has always been a lagging variable, but should it lag by two years?

The chart below perhaps best illustrates our current economic situation. The economy has recovered. We are producing the same amount of economic output as we were back in late 2007. But now we are doing this with 7 million fewer workers.


Source: Bureau of Labor Statistics, Bureau of Economic Analysis

So far in 2011, employment has begun to pick up slightly, so perhaps employers have maxed out the productivity they can get from their existing workforce. But questions remain: Is the lack of employment so far simply an unfortunate reflection of the severity of the recession, with employers still stinging so much they are reluctant to take on the risk of hiring? Or, are we at a “new normal” where new technologies and outsourcing mean we shouldn’t expect to see full employment (below 5 percent) anymore? This writer still leans to the former, but if employment levels don’t start climbing soon that answer may soon change.

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