Increased Worker Productivity Putting Brakes on New Hires

Worker productivity increased 3.8 percent in 2009, the best record since 2002. Writing in the Washington Post, Neil Irwin notes, “That means high-level gains in productivity – which in the long run is the key to a higher standard of living but in the short run contributes to sky-high unemployment.  So long as employers can squeeze dramatically higher output from every worker, they won’t need to hire again despite the growing economy.”

Federal Reserve chairman Ben Bernanke called the increase in productivity “extraordinary” and admitted that he had not seen it coming.  “It is an episode that we’re going to – we, economists in general – are going to want to understand better and look at for a long time.”

Irwin wonders why companies didn’t achieve those gains when the economy was strong.  He believes the answer is with the employees themselves.  “Workers were in a panic of their own in 2009.  Fearful of losing their jobs, people seem to have become more willing to stretch themselves to the limit to get more done in any given hour of work.  And they have been tolerant of furloughs and cutbacks in hours, which in better times would drive them to find a new employer.”

James Manyika, a director at the McKinsey Global Institute, sees it this way:  “Companies are taking a fresh look at how to organize people, at how people actually work.”