An article in Market Watch a couple of weeks ago, written by Steve Goldstein, indicates that declining productivity in America’s marketplace is causing a change in the level at which unemployment rates are due to settle as the new norm. Currently we have 1.7% GDP growth, 1% job growth, and less than 1% productivity growth
An economist, Northwestern University economics professor Robert Gordon, who is one of the world’s foremost experts in the field. stated that “a sharp upward spike in productivity in 2009 and early parts of 2010 was simply due to companies overfiring in response to the financial crisis of 2008 and 2009. Now, productivity is on the way back down as companies have stopped these mass layoffs — as evidenced by the sharp drop in first-time claims for unemployment benefits over the last year.”
His numbers on trend productivity show a revival to an annualized rate of 2.3% in mid 2001 before a decline down to 1.7% in 2007. He now sees the trend at a postwar low of 1.2%; actual productivity on an eight-quarter moving average is actually below the trend as companies have corrected the overfirings.
Though the jobs picture brightened a bit in July, with 163,000 nonfarm positions created, Gordon says the unemployment rate isn’t likely to drop back down to prerecession levels around 5% anytime soon.
“I think more realistically that, gradually, [unemployment] equilibrium will move from 5% to 7%,” he said. He says that fits with anecdotes of businesses finding difficulty in hiring workers with the right skills, and with skills eroding from the long-term unemployed. In July, there were more than 5 million people who have been out of work for more than six months, according to Labor Department data released Friday.
The Labor Department has since released second-quarter data on productivity, an oft-maddening, frequently revised and rarely market-moving number that nonetheless provides vital insight on the performance of the economy.