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Home Publications Blogs Beat the Press Weak Productivity Growth, the Secret to Job Growth in the Obama Recovery

Weak Productivity Growth, the Secret to Job Growth in the Obama Recovery

Friday, 07 June 2013 11:12

Some of us (well at least me) are surprised that an economy growing at a rate of 2.0 percent or less can create around 1.8 million jobs a year. That doesn't seem to fit. We had been seeing productivity growth of close to 2.5 percent. At that rate the economy could grow 2.0 percent a year with no additional labor. So what is going on?

Well, we aren't seeing productivity growth of 2.5 percent a year any more. In fact, in the last two years productivity growth has grown at less than a 1.0 percent annual rate. This is a sharp departure from the pattern in past upturns where we have seen strong productivity growth in the first years of the recovery.


                              Source: Bureau of Labor Statistics.

This is the secret to job growth in this recovery. The question is whether the slowdown in productivity growth is permanent or just a response to a weak economy. The latter story would be that workers are taking low paying and low productivity jobs because there is nothing else available. This would be the more optimistic scenario since it would mean once we ever got a policy that actually generated demand we would return to a path of healthy productivity growth.

Remarkably, we have a whole group of policy types running around worried that we won't have any jobs because robots will displace everyone. This is occurring at a time where the data is showing the exact opposite with the recent stretch of slow productivity growth. This would be amazing until we remember that these are the folks that took the Reinhart-Rogoff story seriously for the last three years. 



The X-axis shows productivity in the first 15 quarters of the recovery (except for the 1970-73 upturn, which didn't last that long). For reasons unknown to me, the tick marks disappeared in the transition from Excel. Obviously this is yet another Excel spreadsheet error.


Comments (11)Add Comment
Missing Time Line
written by NWSteve, June 07, 2013 1:14
Dr. Baker:
it appears that the "X" axis would benefit from a bit more info...
thank you...
Robot haters hate R-R too.
written by Capt. J Parker, June 07, 2013 9:19
Ok, I stipulate that the following is pure speculation but, here goes. The "robots will take all the jobs" fools are the same folks that see market failures everywhere and are all too eager to have a planned economy with government paying for health care, education, retirement etc. The R-R acolytes have a bias for less government or, at the very least, lower government spending. These later types (like me) worry about bloated government crowding out the investment needed to create better, even more productive robots. There is no single policy wonk that wants to both kill the robots and appoint R-R as CEA co-chairs. Unless he or she has bipolar disorder.

To the Robot haters: Why don't you use spoons?

One last thing. Why would LOW productivity jobs be the ones most available in a WEAK economy? You would think that low paying high productivity jobs would be the ones suppliers would most likely want to fill. So, maybe our debt ridden government has hurt productivity growth through lower investment and R-R aren't quite such big fools after all.
written by Last Mover, June 07, 2013 10:10
@Capt. J Parker

So how long have you been surviving on a diet of apples and oranges anyway Cap'n? Was it after flashing around military credentials to distract from the lack of qualifications or did it start with the incoherent drivel?
In defense of the robot-lovers...
written by LSTB, June 08, 2013 7:08
...I think they're making a long-term argument not a short-term one. If they're not, then they're wackos who don't get (depression) economics, much less the lump of labor fallacy/Luddite fallacy.

There are some robot-lovers who say that even if we reverse the trade deficit, manufacturers will use robots instead of people so no jobs will be created. I think this argument is irrelevant to the point of reversing the trade deficit.
written by watermelonpunch, June 08, 2013 8:04
I think the robot argument might exist as something yes, in long-term issues. But it seems mostly these days to just be a convenient red herring which has been adopted by shrewd actors who have their own reasons to use it to influence certain uninformed people to whom it might seem plausible.
why are low productivity jobs created?
written by Andrew Burday, June 08, 2013 9:55
"The latter story would be that workers are taking low paying and low productivity jobs because there is nothing else available." The question would be, though, why is there a supply of low productivity jobs? A standard story over the last 2-3 years has been that low productivity jobs are the first to get cut, so that productivity tends to rise in the recession. This has been a standard explanation of the rise in Irish productivity. I would have thought that they would also be the last to get added, so you wouldn't expect to see them until the end of a recovery. So what gives?

(Yes, I am aware that I am "Captain Parker" already asked this question, and yes, given the Captain's first paragraph, that makes me nervous. I don't accept the Captain's zombie crowding-out answer. But it still looks to me like a good question that needs an answer.)
Andrew Burday - You have the answer
written by Capt. J Parker, June 08, 2013 1:32
low productivity jobs are the first to get cut, so that productivity tends to rise in the recession
I think that's it. This recession was nasty so, lots of low and middling productivity jobs got cut and productivity increased a lot during the recession.

[url= http://data.bls.gov/pdq/Survey...R_lprbrief

So, it's only natural that productivity growth in the recovery from this recession is below average since productivity just had a very big boost putting it above the longer term trend. With all that said, long term productivity growth looks like it's flattening out some since 2004. That's not good news. I'm sure some government regulations can fix that problem though.
Andrew Burday - You have the answer
written by Capt. J Parker, June 08, 2013 1:52
Ill try the link to BLS productivity graph again:
[url= http://data.bls.gov/pdq/Survey...R_lprbrief
BLS graph take 3
written by Capt. J Parker, June 08, 2013 2:00
Guess you'll have to cut and paste. Sorry.

Productivity, Job Loss/Increase, Growth and Output Gap
written by Last Mover, June 08, 2013 4:59
Productivity Growth Does Not Explain the Lack of Jobs

Dean Baker
The American Prospect, March 31, 2010

The Washington Post repeated a common complaint that the reason that the economy is not creating jobs is because employers are squeezing more productivity out of workers and therefore need fewer workers to produce the same level of output. Productivity growth cannot explain the failure for the economy to generate jobs thus far in this recovery.

While productivity growth has been strong over the last year, growing by 5.8 percent from the fourth quarter of 2008 through the fourth quarter of 2009, this is common for a period of recovery. Productivity grew at a 6.9 percent rate in the four quarters from the first quarter of 2001 to the first quarter of 2002, a 5.4 percent rate from the third quarter of 1982 to the third quarter of 1983, and a 4.6 percent rate from the third quarter of 1974 to the third quarter on 1975. The rapid productivity growth seen in the last four quarters is a typical pattern at the end of a recession, it does not explain the lack of job growth in this recovery compared with the rapid job growth in prior recoveries. The difference is rather explained by the relatively weaker growth in this recovery.

--Dean Baker

Then there's this by Josh Bivens at EPI that compares productivity across the recessions/recovery of '81, '90, '01 and '07 with job loss and output gap, including a response by link from Dean Baker.

written by Sideshow Bill, June 09, 2013 6:38
How is productivity supposed to increase when we're already saturated with work. We've automated everything possible where I work, and not backfilling positions that have been open for the last couple of years. Meanwhile the number of projects has quadrupled. Finally, the C suite is starting to notice that things are falling through the cracks.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.