Wednesday, September 2, 2009

What’s Wrong with Rising Productivity?

Despite the current recovery in the stock market, leading economists, journalists, market participants, and politicians all decry the lack of job creation in the economy. This morning’s economic news (September 2, 2009) included a 6.6 percent increase in Q2 productivity, which translated into lower labor costs. Although productivity gains are the foundation of rising living standards, current gains are blamed for retarding job growth (whether productive or make work jobs).

The reverse of Parkinson’s Law may be in play here. The law, first published in 1955 by C. Northcote Parkinson, stated that "work expands to fill the time available for its completion." Parkinson pointed to such facts as the number of employees in Britain’s Colonial Office increased as the size of the British Empire declined, and the number of admirals in the British Navy rose as the number of ships declined.

I’ve witnessed the reverse of his law on the Stanford campus this summer. Over the last ten years, the number of faculty has grown less than 10 percent, while the non-academic staff has increased 50 percent. Sharp falls in endowment income and gifts have forced a reduction in staff. With fewer employees, the grounds department has done its best work since 1976 cleaning up the campus, mowing winter growth, pruning trees, and so forth.

Those with jobs are working harder than ever before to keep their jobs. New hires are working hard to stay employed. When employers begin to add net new jobs to their payrolls, these newly hired will be more productive than in previous periods of job growth. This is a good thing, even if current unemployment is troubling. A more productive economy over time is good for workers, investors, and public revenue. Why can’t more people see this?

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