Thursday, February 2, 2012

Productivity is bad for job growth?

Scanning the news feed for something worthy of being shared with Twitter, I happened across this good news/bad news article from USA Today: Unemployment benefit claims, worker productivity fall. Less benefit claims is a sign that more people are going back to work, although drops in productivity temper optimism about the speed of economic recovery.

Instead, apparently the author of this piece took it be good news/good news, claiming
Weaker productivity growth can help boost hiring if economic growth picks up.
This argument is motivated by the lump of labor fallacy (the idea that there are only so many jobs to be done, so higher productivity will leave more out of work) and a preoccupation with firms as purveyors of jobs rather than producers of products. Both of these ideas are largely discredited among economists.

In reality, productivity growth is the driving factor behind economic expansion. For economic growth to pick up, we need the inputs of production (labor, capital, etc.) to become more productive, not slow down! This allows us to both become richer and create more jobs as a society.

At the micro-level, theory predicts that a firm will not pay a worker more than their marginal product; i.e. if a machinist can produce $50 worth of goods in an hour, a company that pays him/her $51 per hour will be losing money. USA Today misses the irony when going on to claim
consumers have been weighed down by wages that haven't kept pace with inflation.
If that is occurring, it's because worker productivity hasn't kept pace with other factors in the economy. This argument is made in more detail by several recent books: Race Against the Machine by Erik Brynjolfsson and Andrew McAfee, and The Great Stagnation by Tyler Cowen both explore the phenomenon of declining worker productivity, and neither are excited about that decline as a source of new jobs.

Lower productivity means reduced living standards for future Americans. It doesn't even rise to the level of a placebo for our current unemployment woes; generally, placebos are expected to do nothing, not make the problem worse.

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