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.



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.


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...



"...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...


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.


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.


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.

Eric M. Jones.

Don't drop the soap....


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.

Mike B

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


"One factor was the trimming of deadwood."

Eight million people lost their jobs in this recession and now face the most difficult job market since the Great Depression. Your lack of human compassion in classifying this group as deadwood is insulting.

I'm sure this post will not appear on your website. Just wanted you to know that you are lacking as a human being.

Mike B

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.


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

Mark Jason

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.
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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.


Mike B

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.


As the spouse of a laid-off worker, it's painful for me to see again and again this contention that "bad workers" or "the less productive" got laid off.

This "analysis" attributes to the individual workers the utility of their job sector - in other words, in my (admittedly biased) opinion, my husband was laid off neither because he was a bad worker, nor because he was unproductive - he was neither of these - but because his segment of the company was less productive *in the new environment* than other parts of the company.

We are continually told to specialize to enhance our employability - and so we specialize - and then the rug gets pulled out from underneath us. This recession is depressing.

James Briggs

The secret of Henry Ford's success was paying his workers enough to buy his cars. Your husband was laid off because there very little demand for what your husband makes. There is very little demand because the middle class doesn't have enough money. They don't have enough money because it was transferred to the rich. The American people have been lied and now they are afraid to think for themselves.

James Briggs

Anyone who knows anything about the economy knows we are in a depression. A depression is a recession lasts indefinitely. There is no reason to believe that we will ever get out of this so called recession is because the middle class doesn't have the money to keep the economy going. The middle class doesn't have money because it was transferred to the rich. Compared to the year 2000, the middle-income bracket is about 4 percent smaller than it might otherwise be, after adjusting for population growth and inflation. And the low-income bracket is about 7 percent bigger. The Republicans supported a long term strategy to wipe out the middle class which started but removing anti trust laws from the media. The media speaks with one voice extoling free enterprise. This includes the internet. We never hear an argument for anything the rich doesn’t want us to hear. Will ever hear anything from a Keynesian Economist on this site. I think not. The only sites that come up on Google pretend to explain it but exist only to refute it. The free enterprise system that the media claims is free isn’t free at all. The government transfers money to the rich while everyone is told it is giving money to the poor and it should stop. All this is given force by spreading fear by saying that soon white males will be rounded up and sent to death camps. So we have an army of unreasoning fearful fanatics who will do anything they are told even if they end up homeless living in the streets.