During the recession of 2008-9, labor hours fell sharply, while wages and output per hour rose. Some, but not all, of the productivity and wage increase can be attributed to changing quality of the workforce. The rest of the increase appears to be due to increases in production inputs other than labor hours. All of these findings, plus the drop in consumer expenditure, are consistent with the hypothesis that labor market “distortions” were increasing during the recession and have remained in place during the slow “recovery.” Producers appear to be trying to continue production with less labor, rather than cutting labor hours as a means of cutting output.
That last sentence, if it turns out to be true, is of course the most troubling. Note: this is not Mulligan’s first paper on the topic.
This paper is a goldmine of information on the cyclical behavior of productivity and how it has changed in recent times. Basically, we’re now at the point where a recession means they dump the bad workers and we subsequently have a jobless recovery.