At Least One Labor Measure Was Up During the Recession

Productivity, that is. One factor was the trimming of deadwood; the other seems to be old-fashioned harder work. From a new working paper by Casey Mulligan (emphasis added):

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.

Related, and also interesting: a new paper by David Berger about labor productivity and unions, summarized well here by Tyler Cowen, who notes:

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.


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  1. Becky says:

    Why does it take a recession to “dump the bad workers?” Why can’t business dump bad workers regardless?

    Perhaps it’s not JUST that bad (or less productive) workers are getting dumped . . . perhaps ALL workers who still have a job realize that they MUST be PRODUCTIVE to not only keep their job, but TO KEEP THE BUSINESS ALIVE.

    Who in their right mind thinks that a business (or an economy) can stay alive by paying NON-PRODUCTIVE “workers.” Oops, that rules out paying the (non-handicapped) unemployed and healthy retirees, excessive vacation time, non-monitored work-at-home jobs, the union teachers in “rubber-rooms,” the union workers on “stand-by” . . . the list goes on. We’re on a slippery slope . . . it’s Greeced.

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    • aepxc says:

      One is only (functionally) unproductive if one takes in more benefits than the value one contributes. Thus, when it comes to paid vacation time, retirement benefits, etc. the question is how much value an employee has contributed, and how much benefit has he or she extracted through other forms of compensation. The precise design of one’s compensation package merely determines the forms that the benefits take, not the ultimate amount. Actually, by this standard I imagine the C-suite would have a much harder time justifying their benefits-to-value ratios than any unionised labour.

      As an aside, we are clearly not running into any demand ceiling (we would all want more stuff if we could have it). We are also not running into any human capability/motivation ceiling (plenty of people are able and willing to work). What we are having trouble with is matching the two, especially since a significant amount of capital and organisational capabilities are required to transform the latter into something that meets the former. Of course, control over capital and organisational capabilities is now highly centralised…

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      • James says:

        “…we would all want more stuff if we could have it…”

        Not true. I have all the stuff I want – barring of course things like buying Idaho or starting my own space program – and don’t imagine I’m unique. In fact, I’ve often argued that excess stuff might be the root cause of this recession: people’s garages got filled with stuff that was bought but never used, then when the housing market collapsed, they could no longer upgrade to places with bigger garages, and so had to go cold-turkey on their stuff-buying habits. Which of course sent shockwaves through the rest of the economy…

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      • Douglas says:

        That is so cynical… but it is almost definitely true (at least for some/many). I would further posit that most workers want only enough to maintain a comfortable lifestyle (a value that varies by individual); if offered more, the definition of comfortable will shift over time to encompass the new level of compensation.

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      • Mike B says:

        Dumping even bad workers comes with a cost. It can hurt morale if the worker was well liked or an important part of the social structure of the office. It can increase turnover as other productive workers fear for their own jobs perhaps if they believe that firings are not based on merit. It can lead to revenge by the fired employee from lawsuits to leaking of proprietary information or even the employee showing up with a gun and shooting up the office. Finally, if the business is humming along most people, even managers, don’t like to fire people, especially if they had been there for a long time.

        Many of the structurally unemployed were mid-level managers or other soft professionals like HR or marketing that have very good people skills and thus were able to stick around as their marginal productivity declined because replacing HR with software or making other adjustments wasn’t worth the hassle when times are good. Once the company is having serious cash flow problems then there is simply no other choice.

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    • James Briggs says:

      The non-productive workers are the executives who run the company. Once you were convinced to blame other workers and the poor the rich can do anything to you and you will never blame them.

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  2. Tim says:

    I’ve noticed that I have received fantastic costumer service since the recession started. I’ve attributed much of this to the fact that many of the workers seem to be of higher quality than before. Many of the former mid-level office workers are now waiters, cashiers, etc. It’s a terrible under-utilization of skills, but I’ve enjoyed the increased quality.

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  3. Shane says:

    Surely productivity is a good thing, and improves the market in general, no? A business that is highly efficient is, I imagine, poised to take advantage of opportunities once the economy improves again.

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  4. Eric M. Jones. says:

    Don’t drop the soap….

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  5. Nick says:

    Bad workers get dumped in good times just the same, but then the employer will attempt to replace them.

    What I’ve seen over the last 5 years is companies shutting down buildings and transferring their operations to 3rd world countries. I’d hate to think that their identifying entire work sites as full of “bad” unproductive employees. More likely it’s because they’ve found a labor force that can live on less than $10/day.

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    • Mike B says:

      I’d say that computers and IT have had a larger impact on hiring than the third world, especially in the last 10 years.

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  6. Ed says:

    Hidden due to low comment rating. Click here to see.

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    • Mike B says:

      Nobody has a right to a job. Communist planned economies tried that route and utterly failed. The long term unemployed lost their jobs because their skills were no longer in demand. There’s a lot that can be done, but just keeping people on the payroll because its the compassionate thing to do doesn’t work. Ask Greece.

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      • Julie says:

        Wow. You are missing the point utterly. Good luck when *you* become “deadwood,” despite your best efforts.

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      • James Briggs says:

        You think because Communism is bad it’s opposite is good. You are like a guy who hates chocolate so he only orders vanilla. There are many flavors of economics besides the so called free market. We had something called Keynesian Economics from 1940 to the year 2000 and there were no depressions. Then because the media is one big monopoly you have only heard one story. What we have now is crony capitalistic posing as free market. The economy kept getting worse under Bush because money was transferred from the middle class to the rich. Obama changed none of Bush’s policies except to bring in Romney’s health care plan which is another giveaway to the insurance companies. Everyone Obama Romney the Democrats the Republicans, the internet and academia has all been bought off and this depression has no end date.

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  7. Mark Jason says:

    The recession 2008-9, in fact, differs from previous episodes in the evolution of the civilian labor force. While the 1973 and 1981 recessions saw significant labor force growth, the 1990 and 2001 episodes had meager increases. In the last recession, the civilian labor force moved between those experiences until October 2008 . From then on, the labor force continued on a somewhat unusual path of minimal growth that dipped below the historical range two months later and stayed there every month except May 2009. In the last few months of 2009, the civilian labor force fell noticeably below its level at the start of the recession in December 2007.
    Presentation Folders

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  8. 1389AD says:

    Employers don’t just dump the bad workers; they avoid replacing good workers who retire or die.

    In addition, they also dump (or refuse to hire) older workers who might cost more to insure under Obamacare, or they hire them only for part-time jobs with no insurance benefits.

    Nor will employers take a chance on hiring new workers or those who have acquired some training in a new field (often at their own expense) but lack experience.


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    • Mike B says:

      I know a lot of places in Georgia that won’t hire workers until they repeal the 13th amendment. Just because somethings creates “jobs” doesn’t mean its right or good for society.

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