A drop in worker productiveness for the first time in 18 months is actually good news for the struggling United States economy and high unemployment rate. Companies that slashed payrolls during the recession have been raking in profits by getting more output from less workers. But the latest round of worker productivity statistics from the Labor Department shows that staffs are stretched too thin. Corporations could have to start hiring to maintain growth and revive economic recovery if that turns out to be true. Resource for this article - Decline in worker productivity may be good for economic recovery by Personal Money Store [1].
When declining worker productivity is good news
After posting large gains in 2009, the Labor Department said that worker efficiency declined at an annual rate of .9 percent in the second quarter. The Associated Press reports that Americas worker productivity is the key ingredient to boosting living standards. The increased production resulting from higher productivity allows corporations to increase wages without increasing prices . Decreasing efficiency would be a negative for the Americas economy in normal times. But in this economy, some analysts say that businesses profiting from job cuts will eventually be hurt by the high unemployment rate. Increased hiring will create the jobs consumers need to increase spending, which accounts for 70 percent of the United States of America economy. And that would ultimately lead to more demand for those companies' products.
Workers with jobs working harder
For businesses that may have believed the Americas had entered a period where output could keep climbing without bringing individuals back to work, CNN reports that the latest worker productiveness numbers are a dose of reality. At its worst, corporations did more with less during the recession. But economic output was outstripped by hours worked in the report from the Labor Department. Corporations probably "overdid it" with layoffs during the recession, said Nariman Behravesh of IHS Global Insight in Lexington, Mass. In the CNN article. He said that if for no other reason than keeping employee morale up, companies may have to hire more to avoid worker burnout.
Job creation critical to keep away from deflation
For the next few months, Behravesh said, job generation will probably remain low. He expressed longer-term optimism, however, saying the private sector could start adding 100,000 jobs a month by year-end and perhaps 150,000 by mid-2011. A report from ABC news disagrees, saying that weak efficiency, along with other indicators, shows that the economic recovery is losing steam. Within the second quarter, the overall economy grew at an annual rate of just 2.4 percent, slipping from 3.7 percent within the first quarter. Some Federal Reserve officials have expressed concern about a punishing cycle of deflation if employers view high unemployment as a chance to drive wages down for those still working.
Additional reading
google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD9HGMHAO0
CNN
money.cnn.com/2010/08/10/markets/thebuzz/
ABC News