Productivity and Unemployment

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Note:
In the final three months of last year, productivity -- the amount
of goods and services produced for each hour worked -- rose at a very strong
5.2 percent annual rate. And analysts predicted that the first-quarter
number, which will be reported Tuesday, could reach a 7 percent annual
rate.  Those gains mean that employers' labor costs per unit of production
were falling significantly in both quarters, an indication that corporate
profits should again go up after a sharp recession-induced decline last
year.

I vaguely recall that supply-siders argue that producitvity translates into higher wages.  Not only when unemployment goes up, productivity goes up, but wages also declines, to moderate layoffs. Top management bonuses go up when profit falls with the rationale that companies cannot afford to lose irreplacable leadership talent in times of distress.  For top mangement, bonuses go up in good times and they go up in bad times.  For workers, wages are cut when employment is up, by reason that more are sharing the fixed wage price, and wages are cut when times are bad, by reason of keeping unwanted workers around. Wages go down in good times and they go down in bad times.  And wages will always go down if you don't want to give your job to someone overseas.  What is more, your pension fund is putting you out of work and shipping your job overseas, forcing you to retire earlier so the fund doesn't have to pay you your full due.  I can understand why workers in the emerging economies get seduced by global capitalism, but I can't understand what American labor is thinking about.

Henry C.K. Liu

Jobless Rate Is Highest Since '94
6% Figure May Go Up as Firms Await Broader Recovery
By John M. Berry
Washington Post Staff Writer
Saturday, May 4, 2002; Page A01

The U.S. unemployment rate last month was the highest in nearly eight years, 6 percent, as employers continued to expand production without hiring many additional workers, the Labor Department reported yesterday.

Despite a very strong rebound in economic growth following last year's recession, unemployment rose from 5.7 percent in March and surpassed the recession peak of 5.8 percent in December. The rate hasn't been 6 percent since August 1994.

Many analysts expect a further increase in unemployment until continued economic growth encourages more hiring.

The number of people with jobs did increase by 82,000 last month, according to the department's monthly survey of American households. The unemployment rate nevertheless increased because that small gain was swamped by a 565,000 rise in the size of the nation's workforce. As a result, the number of unemployed people looking for work but unable to find it rose to 8.6 million.

"At the moment, employers are reluctant to hire permanent, full-time employees until the recovery is solid," said economist Sung Won Sohn of Wells Fargo Bank. "Eventually, continuing economic growth will persuade businesses to hire permanent, full-time employees."

"The fact that the labor force has been rising, boosting the jobless rate, is not a bad sign," Sohn said. "As the economy expands, creating more jobs, people are coming out of the woodwork looking for jobs. This is the main reason why the jobless rate is a lagging economic indicator."

The Labor Department's separate survey of businesses found that employers' payrolls climbed by 43,000 last month, as declines in construction and manufacturing payrolls were more than offset by increases in various service industries. However, the department also revised downward its previous estimate on March payrolls to show a decline of 21,000 jobs instead of a gain of 58,000.

After the 1990-91 recession, which was worse than last year's, the unemployment rate rose another percentage point from its level in March 1991, the official end of that downturn, before it began to fall. Economists have not yet determined the official date when the most recent recession ended, but with the economy growing at a 5.8 percent annual rate in the first three months of this year, virtually all analysts say it is over.

Bruce Steinberg, chief economist at Merrill Lynch & Co., said he also expects "that the labor market will show only very gradual improvement in 2002. That's because corporate restructuring activities will continue full force as companies resize themselves for profitability."

Steinberg and numerous other analysts said the relatively weak labor market portrayed by the report, and other recent figures suggesting that economic growth is likely to slow after the first-quarter burst, assure that Federal Reserve officials won't raise short-term interest rates for several months.

Fed officials will meet Tuesday in a policymaking session at which they are expected to make no change in their 1.75 percent target for overnight interest rates and to conclude that the risks are balanced between the central bank's twin goals of price stability and sustainable economic growth. At this point, many analysts and investors believe that with inflation well under control, the officials will leave rates unchanged again when they meet late next month.

Sohn and others said the largest of the industry payroll declines, 79,000 in construction, was partly a "payback" for the fact that a warmer-than-normal winter kept more construction workers on the job. That meant that some of the workers usually rehired in the spring were already working. After seasonal adjustment, that shows up as a decline in construction payrolls.

Manufacturing payrolls fell by 19,000, the 22nd consecutive monthly decline, but it was also the smallest factory-job loss since October 2000.

Most service industries showed employment gains, including a 66,000 rise in jobs at agencies supplying contract and other temporary workers. In was the second substantial increase for that industry, which employers often tap when they are not sure of future staffing needs.

The Labor Department also said the total number of hours worked last month by production and nonsupervisory employees fell 0.3 percent. However, analysts said that was not a sign the economy was faltering again, but rather that the outsized gains in productivity of the past two quarters were continuing. In the final three months of last year, productivity -- the amount of goods and services produced for each hour worked -- rose at a very strong 5.2 percent annual rate. And analysts predicted that the first-quarter number, which will be reported Tuesday, could reach a 7 percent annual rate.

Those gains mean that employers' labor costs per unit of production were falling significantly in both quarters, an indication that corporate profits should again go up after a sharp recession-induced decline last year.

Forecasters expect economic growth to slow to a 3 percent to 4 percent annual rate in the current quarter. If total hours worked continue to be flat or fall slightly in May and June, essentially all of the increase in production of goods and services this quarter will come from higher productivity. As long as that continues, any increase in hiring is likely to remain subdued, analysts said.

Adult women suffered most of the increase in joblessness last month as their unemployment rate rose to 5.4 percent from 5 percent. The rate for adult men was also 5.4 percent, but that was only two-tenths of a percentage point higher than in March. Joblessness among teenagers rose 0.4 percentage points, to 16.8 percent.

The unemployment rate for whites increased to 5.3 percent from 5 percent, while that for blacks rose a half percentage point, to 11.2 percent. The rate among people of Hispanic origin rose to 7.9 percent, from 7.3 percent.
 

© 2002 The Washington Post Company