Productivity Up: Bad News for Job Seekers?

As Long as Companies are More Efficient, They Have Little Reason to Hire

(CBS/AP)  Companies across the economy are finding ways to do more with fewer workers, dimming hopes that hiring will take off anytime soon.

Employers became leaner and more efficient in the third quarter. Wages, meantime, remain flat or falling. The result is that productivity - output per hour of work - jumped at the fastest pace in six years.

The good news for companies, though, may be bad news for the jobless. As long as companies can get their workers to produce more, they have little reason to hire - at least until consumer spending picks up. And the squeeze on incomes could depress consumer spending, putting the economic recovery at risk.

Still, some economists were encouraged by the productivity report. They say that eventually, employers won't be able to squeeze more from their staffs. They will then have to ramp up hiring - something that could happen next year, even though the jobless rate is expected to hit double digits.

Productivity rose at an annual rate of 9.5 percent in the July-September quarter, the Labor Department said Thursday. That was much better than the 6.4 percent gain economists had expected. Unit labor costs fell at a 5.2 percent rate.

While companies aren't doing much hiring, they're not cutting as many workers, either. The number of newly laid-off workers filing claims for unemployment benefits last week fell to the lowest level in 10 months

The 9.5 percent productivity rise followed a 6.9 percent surge in the second quarter and was the fastest since a 9.7 percent increase in the third quarter of 2003.

The gain reflected that the overall economy, as measured by the gross domestic product, grew for the first time in a year - at an annual rate of 3.5 percent. The higher output came as companies continued to lay off workers. That meant employers produced more with fewer workers.

The 5.2 percent drop in unit labor costs marked the third straight decline and was larger than the 4 percent decrease economists were expecting.

Productivity is the key ingredient to rising living standards. It lets companies pay their workers higher wages. The increases are financed by the increased output rather than higher costs for products.

But as they struggled with the recession, companies boosted output this year while continuing to lay off workers. They also kept wages down by freezing pay or imposing unpaid furloughs.

"Survival meant cutting costs as rapidly as possible and fulfilling orders with the fewest number of workers," said Joel Naroff, chief economist at Naroff Economic Advisors.

Naroff said hiring could remain sluggish for months. But other analysts are more optimistic. They were encouraged by the productivity report, noting that companies are starting to reach the limits of how much they can produce with their shrunken work forces.

"We believe businesses will have to start to increase hours worked and payrolls around the turn of the year since they cannot expect their current work force to sustain such rapid productivity growth," said Michelle Meyer, an economist at Barclays Capital.

The problem is that consumer demand could falter once the government removes the stimulus programs it has put in place, such as record-low interest rates and homebuyer tax credits. Companies could stop hiring if they think demand will slump again.

In a separate report, the Labor Department said first-time claims for jobless benefits last week fell by 20,000 to a seasonally adjusted 512,000. That's better than economists' estimates of 523,000.

Economists closely watch initial claims, which are considered a gauge of the pace of layoffs and an indication of employers' willingness to hire new workers.

On Wall Street, the better-than-expected jobless claims report and news that retailers posted their second straight month of sales gains in October buoyed investors. The Dow Jones industrial average added more than 175 points in afternoon trading, and broader indexes also gained.

The four-week average of jobless claims, which smooths fluctuations, dropped to 523,750, its ninth straight decline. That's 135,000 below the peak for the recession, reached in early April.

Despite the improvement, initial claims remain well above the roughly 400,000 that economists say will signal job creation.

Another 4.1 million people claimed extended unemployment benefits in the week ended Oct. 17, the latest data available, an increase of about 100,000 from the previous week. Congress has added 53 weeks of emergency aid on top of the 26 weeks typically provided by states.

Still, as roughly 7,000 Americans run out of extended benefits every day, the House is expected to approve legislation that would add another 14 to 20 weeks. The Senate unanimously approved a similar proposal Wednesday.

The National Employment Law Project, an advocacy group, estimates that up to 1.3 million people would exhaust their benefits without the extension.

Economists expect the nation lost a net total of 175,000 jobs last month, adding to the 7.2 million lost since the recession began in December 2007. And many expect the jobless rate could rise as high as 10.5 percent before the recovery gains enough steam to start pushing it down next summer.

Layoffs have continued this week. Microsoft Corp. said it was cutting 800 more jobs at its facilities worldwide. That comes on top of the 5,000 layoffs the software giant announced in January.

Johnson & Johnson said it could cut up to 8,300 jobs as part of a restructuring and Sprint Nextel Corp., the nation's third largest wireless provider, said it planned to trim "dozens" of jobs from its wholesale division amid a drop in customers.

Economic growth could slow early next year as various government stimulus programs wind down, analysts say. That uncertainty has made many employers reluctant to hire and households contending with more layoffs, stagnant wages and depleted savings.

But the Federal Reserve pledged Wednesday to continue to keep interest rates low for an "extended period," a commitment central bank policymakers can make because wage and general inflation pressures have vanished during the downturn.

[askagain]

jsperry51 - You are asking people to share the poverty by giving up their overtime. That is unlikely to happen. There are many jobs where overtime is the norm. For many people, eliminating overtime would require them to get a second or third job. That would make the job market even more competitive. Obviously, you have had some bad breaks. But why wish problems on other people?

[jsperry51]

Right at this moment, I don't see any light at the end of the tunnel. haven't in quite some time.

[askagain]

Greater productivity can occur from a number of things. The use of computers and improved communication modes are two examples. When I bought my first dot matrix printer, I could produce a thousand mailing labels an hour. When I typed labels using a typewriter, I might be able to generate 50 labels an hour. That was a huge increase in productivity. I am a magazine publisher. The printing company that does out printing keeps buying faster equipment. They are able to print 2 to 3 times faster than they could 5 years ago. The problem is increased productivity does not necessarily reflect in higher pay for workers. If you operate equipment that produces 100 times more than you could do in an eight hour day by hand, you are still working the same 8 hours. From an employer's point of view, increased production is often offset by higher costs for insurance, materials, supplies, wage increases, etc.

[jsperry51]

You say people depend on the OT pay they get. Well as one of the unemployed, too bad. If they need that money they are living well outside their means. Not our problem. If people would give up their OT and live on a 40 hour week, maybe some of us others could have a job. I live on $225 a week while raising two kids, paying for a house, and all the essentials needed -BY MYSELF. I'm not on welfare, I don't get foodstamps (they say that 225 is too much to get any foodstamps), and my kids are products of a marriage gone bad. I'm making the best of a bad situation. So can the ones that are soaking up all the OT. Cut expenses is my advice.

[rwsmith29456]

I think trying to tie increasing productivity to not hiring is like comparing apples and oranges. Whether productivity is high or low companies are going to try to get by with the least number in workforce.

[askagain]

rwsmith29456 - You are correct. Machinery is a great example. As equipment is made that can do things easier, quicker, and with fewer people, we see a rise in productivity while fewer workers are needed. Even when we outsource work to countries with cheap labor, technology may enable us to produce things more cheaply in the United States. Unfortunately, there are a lot of factors besides the cost of labor. Countries such as China and Mexico often have lax labor laws, lax environmental restrictions, less requirements for safety equipment, few or no labor unions, and fewer lawsuits. Americans workers are not playing on a level playing field with workers in other countries

[tmittelstaed]

You know, with the many many years of productivity gains, espically those fed by technology, it's time I think to take a look at the "40 hour work week"

The notion that business output fed by productivity gains can continue to increase indefinitely is baloney. When business output exceeds the supply of buyers, prices fall, which then nullify any economic gains gotten by the productivity increases.

We don't need to limit productivity. That would be like for example telling everyone they can only buy 10,000 mile tires because the 40,000 mile tires cost too many jobs in the tire industry. Instead, we can keep making all the 40,000 mile tires we want - but since we have to do it with more workers, to increase jobs, the obvious answer is to have more employees work fewer hours.

The first thing should be making ovetime illegal. Why should an employer hire a worker, then make him work 60 hours a week, 20 of them paid time and a half, when they can simply hire 2 workers at 40 hours? I know that the unions would scream, but let them scream.

[askagain]

tmittelstaed - Many workers will be screaming, too, if you take away overtime. Overtime add a lot of income for many families. They rely on the overtime to pay their bills and to have a higher standard of living. Millions of people earn an hourly wage and it is only with overtime that they can get by.

[midlclass]

this would be a good idea how ever if your paid hourly you would be taking a cut in your weekly take home buy not working the over time right now most people can't afford to do that. wages seem to be declining at the same time as there is a glut of workers and not enough jobs. the catch 22 is that employers need to increase the wages and benefits of the worker on the floor. this would be a trickle up effect. if i can afford to buy that new car boat bike and or remodel my house there's more money being spent and more product being used. causing the need for more productivity and hopefully more workers being hired. some business some were has to look at reducing prices with the increase in productivity and still keep there work force. laying people off so the ceo can still make his hundreds of thousands or millions of dollars really needs to be looked at for every million dollars put into a work force it creates 20 50,000 a year jobs or 50 20,000 a year jobs.

[tmittelstaed]

"...Productivity is the key ingredient to rising living standards. It lets companies pay their workers higher wages. The increases are financed by the increased output rather than higher costs for products..."

This is utter economics drivel and it doesn't even try to be correct.

Wages for UNSKILLED labor are ENTIRELY AFFECTED by the minimum wage laws, and NOTHING ELSE. Wages for SKILLED labor are affected MAINLY by the laws of supply and demand - when there's unemployed skilled labor out there, wages for skilled labor start falling and continue falling until the unemployed skilled labor pool starts shrinking. Furthermore, each industry has it's own labor pool of skilled laborers since skilled labor doesn't have a lot of horizontal mobility. In fact, it's often easier to take an unskilled laborer and turn him or her into a skilled laborer for an industry with a shortage of skilled laborers, than it is to take a skilled laborer in an industry with a surplus of skilled laborers and move them into a different industry.

If your smart you will realize that employers buy labor the same way that you buy goods at the grocery store. They try to get the best employee at the lowest price. In fact they have a fudiciary obligation to their stockholders to do it this way. And, employers switch employees for the same reasons that you switch brands. If an employer is on a tight budget he will be forced to use an inferior employee because that employee is cheaper. If he has a good employee who is working out for him, he will keep him as long as that employee continues working out. If he has an employee who's quality goes downhill he will eventually stop using that employee. If he has too many employees he will stop hiring. It's pretty basic, here.

[lovenpeace1]

Folks,

OutSource or InSource (H1B) the jobs and the Productivity numbers will go thru the Roof. Corporate America can do more with cheap slave salaries.

Productivity means nothing now when Corporate America can OutSource and InSource any jobs. In other words, what good is High Productivity when jobs get OutSourced and InSourced anyway.

[curse914]

by chevyhotrod November 5, 2009 4:48 PM EST
Maybe the current worker is working harder because they don't want to be laid off too? And they want to show their boss that they can get the job done of two workers instead of one.

"cheap slave salaries" Hey, loven slavery ended a long time ago, if anything we are becoming slaves to the government to pay for all the entitlement programs for people who don't want to work because they can earn more money in the unemployment line, every think about that? I doubt it.

The amount we pay in taxes today, at least the ones that actually pay taxes, the top 50% of wage earners will only be paying taxes to cover the interest on the debt and the debt will never be paid, much like a revolving credit card. The principle never gets paid, only interest. Much like what happened in the housing industy. An indentured servant for life is what we are facing. Than you can say we are all slaves to the government.

Corporation cannot force you to work for them, but the government, we have no choice but to pay, if we do not pay, then put us in jail. Wait or it, wait for it, think about it, think a little harder.

We are all becoming slaves.

Ignorance is our most expensive commodity.


[][][][][][][][][]

Your diatribe would make sense in a world were you do not require food and shelter to survive. As it is, we all have to work to survive.

"Ignorance is our most expensive commodity.", right back at you.

besides, the unemployment check scales to pay and reaches a maximum no matter how fat your previous paychecks may have been. It never is "more" than your current wage, as you are inferring.

[ajvw]

fire a few million and those still working get more productive...amazing how that works

[rightbehind]

Tax breaks for the wealthy so they'll hire more people than they need! Innovation and need is the only things that create real jobs.