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Steven Hansen
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Steven Hansen is an international business and industrial consultant specializing in turning around troubled business units; consults to governments to optimize process flows; and provides economic indicator analysis based on unadjusted data and process limitations.
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Econintersect LLC
My blog:
Global Economic Intersect
  • Productivity Increases During Recessions Are Bad News 4 comments
    Sep 6, 2009 11:40 PM

    Productivity increases during recessions are not good news.  Looking at the unit labor costs, increases either flatten during or after the recession.

    The reason is that business needs to keep its skilled workforce - as they are betting on re-expansion.  I can only think of two reasons why productivity would increase during a recession:
    1. you have exported the labor intensive jobs and kept the low labor jobs;
    2. you have rationalized your workforce to a new environment.

    either way, not good.

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  • Ricard
    , contributor
    Comments (3814) | Send Message
    Thanks for posting supplementary material to your weekly article.


    Your point #1 looks much more plausible in this light - in your main article, you stated that "We are exporting labor intensive high paying jobs and keeping lower paying automated jobs. " I simply could not even think of an example where more un-automated labor would equate to a higher wage level.


    In the context here, where wage level is irrelevant (or at least not stated), I can easily see us exporting, say, computer recycling jobs, which are labor intensive, to countries with lower environmental standards and a work force that would tolerate the risks for low wages.


    Another example would be how we have kept jobs at the designing and planning level, while exporting jobs at the production and manufacturing level. Both are high labor, high automation/computeriza... type jobs, but designing pays more.


    Such exporting would then eliminate jobs with lower productivity levels per hour worked, and thus would raise overall productivity levels here.


    Of course, whether or not gutting the supply chain at home and exporting it abroad is sensible is up for debate...yet the logic of profit maximization seems to hold for this scenario, at least for now.
    7 Sep 2009, 10:37 AM Reply Like
  • Ricard
    , contributor
    Comments (3814) | Send Message
    I almost forgot about your point #2 - I completely agree that this is what happens most of the time during recessions - cost cutting and lay-offs scare the remaining workforce into accepting concessions and thus 'rationalizing' their job at a 'new normal'.


    Yet, IMHO, this is a good thing. This needed to happen at GM a long time ago. This happened to airlines right around 9/11 (like CFC, 9/11 accelerated the decline of most airlines' business models). This happened to tech right after the dot-com bust.


    I don't know about airlines, but tech certainly has come out healthier and with products that customers want at a price they can afford. Hair-brained ideas no longer dominate the airwaves, and capital is more efficiently allocated in that sector. Of course, labor suffers in the meantime, but I think we can all agree that people working in tech before the bust were being paid far more than their labor was worth. This is probably true for airlines (just look at Southwest), and automobiles (Hyundai workers are American, and are paid enough to sustain a family and send their kids to college). Just think of the productivity improvements that would come from eliminating GM's 'jobs bank', just to cite one well-known example.


    Again, is this good for the country as a whole? Not too sure about that one. But, in any capitalistic system, labor is simply an input, one to be marginalized. The system favors the capitalist. That is one type of thinking that you will never hear from a politician, or an industrialist.
    7 Sep 2009, 10:53 AM Reply Like
  • Ricard
    , contributor
    Comments (3814) | Send Message
    One more point:


    I can't make a conclusion off of your chart. Your point is well-taken that productivity tends to increase during a recession, but I find it puzzling that the largest and most sustained increase in productivity occurred during and shortly after the Vietnam War. I would think that returning vets would lower productivity levels, as the government creates programs to re-integrate vets into society, damned the cost.


    It is also interesting to see how the '20 year boom' starting from the 80s was actually a lot less productive in nature than the preceding 30 years before it.


    Since productivity is measured as a rate, it would follow that after a recession, when hiring resumes, new workers are not nearly as productive as those with experience. I would use such an argument to explain your point that "...looking at the unit labor costs, [productivity] increases either flatten during or after the recession." Yet, I cannot use your chart as supporting evidence.
    7 Sep 2009, 11:18 AM Reply Like
  • driftwood2
    , contributor
    Comments (300) | Send Message
    Productivity increases because the least immediately useful parts of the workforce are the first to be laid off. However, some of this workforce was working on various forms of business expansion which doesn't yield immediate gains but does yield gains eventually. There's a price to pay down the road. Right now, we're at the tail end of this recession. Technically, I believe the recession is over although there are still problems of course.
    9 Sep 2009, 11:38 AM Reply Like
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