Over at the Wall Street Journal, Greg Ip takes on the question of why job growth has been relatively slow:
The economy is booming. Why isn’t job growth?
Payrolls have risen 1.6 million in the past three months and are up 1.7% this year through May, which in normal times would be impressive. But these aren’t normal times. The economy is rapidly reopening, consumers are flush with federal stimulus cash, and retail sales, factory orders and housing are all booming. Inflation-adjusted gross domestic product is up 5.3% through May this year, according to a monthly series calculated by IHS Markit.
The gap between GDP and jobs is explained by soaring output per worker. The U.S. is in the midst of a productivity boom.
In other words, many businesses are making do with fewer employees by adopting labor-saving technology. But it's worth noting that this is pretty common toward the end of recessions:
During recessions, many employers start looking at technological improvements that didn't seem worth considering when business was booming. Then, when the recession ends, they just keep on using it if it turned out to work well. I don't know for sure if we'll see the same dynamic this time around, since many employers explicitly viewed the recession as limited in time, but I wouldn't be surprised.
I think another factor is that a lot of white collar work is just time wasting nonsense where people report stuff back and forth to each other and during the pandemic that was the first thing to go.
This dynamic was felt especially acutely during FDR's first term. A lot of people don't realize just how strongly the economy grew once the '29-'33 downturn was over (close to 10% annually until 1937, IIRC). Which is understandable; we don't tend to associate the Great Depression with a growing economy! But grow it did in Roosevelt's first term. The problem is productivity was increasing, too, and so unemployment declined more slowly than anybody would've liked. So, sure, we may be seeing some of this in the America of 2021. (I have to say I seriously doubt the effect will be anywhere near as strong this time, and I do expect unemployment to be headed to 5% or possibly below next year).
There's both the impact of the recession and the separate impact of the pandemic, with remote work kicking people out of established routines into finding new ways to do things. Some will turn out to be permanent improvements.
This is a point I have often made before - productivity is naturally cyclic. As a recession starts employers are reluctant to fire, hoping that things will turn up, but will eventually cut their workforce. Then when the economy does turn up they are reluctant to hire again, preferring to get more out of the workers they have. New labor-saving equipment at the beginning of a recession is not usually that much of a factor - employers will not want to risk capital when they can easily get more workers if they see demand increasing. Businesses will be more willing to invest in new equipment when the economy gets hot and labor is scarcer.
Even many supposedly knowledgeable economics persist in overinterpreting the latest monthly productivity figures without considering the cyclicity. Things are somewhat different this time - there is even more of an excess of capital than previously, and demand has been preserved because of government payments.
I would say your argument for cyclicity holds for short-term, relatively small changes in productivity. Over the longer term, large changes in productivity are driven by improvement in production technology, a function of investment.
Every few years when we have downward pressure on the bottom line, we manage to find slack in middle management that allows us to reestablish positive growth and profitability.
Upper Management
Your assumption, Kevin, that only technological advances can explain the increase of productivity, is charmingly naive.
Oh, you have a cell phone now? Well, then you can read and reply to emails 24/7!
> During recessions, many employers start looking at technological improvements that didn't seem worth considering when business was booming
Recessions are too short and problematic for that to be true. When entering a recession, businesses get scared and focus on what's most profitable. Cutting the workforce and hunkering down is what drives the recession. Coming out of the recession, you still have that focus and low head count. Then when times are good, you start looking to develop new profit streams.