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Is Increased Productivity Killing the Economy?

What is this, opposite day?

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Earlier this week, the Atlantic Wire covered the plight of over-qualified workers seeking jobs in our depressed economy. On Wednesday, Washington Post staff writer Neil Irwin sheds light on another paradox of the recession: increased business productivity may be prolonging the economic downturn. Irwin points to the fact that businesses are producing "only 3 percent fewer goods and services" than they were at the end of 2007, though Americans are working "nearly 10 percent fewer hours." As a result, the productivity increases that would normally lead to long-term growth contribute to high unemployment in the short term. "So long as employers can squeeze dramatically higher output from every worker," writes Irwin, "they won't need to hire again despite the growing economy."Business and economic journalists are divided on the cogency of Irwin's diagnosis.

  • I Concur  Ezra Klein of the Washington Post lays out Irwin's economic logic with an apt analogy: "It's a bit like the recession convincing someone to cut out their morning coffee only to learn that they don't really miss it. As they feel more economically secure, they may start buying coffee again, or they may spend that money elsewhere, or they may just continue to save it. There are advantages to all three choices, but what the economy really needs right now is one of the first two."
  • This May Not Last  The Atlantic's Derek Thompson buys Irwin's account of the productivity paradox, but is uncertain as to whether the economy will face uneven growth: "On the one hand, you could could argue the job market is wound like a tightly coiled spring waiting to pop, and our recovery could be a lot more rigorous than the naysayers expect. On the other hand, when the economy really picks up, employers have a lot of slack before they have to wade into the jobless market. They can raise hours from their record lows. They can hire the part-timers. Maybe that helps to explain why even after two quarters of positive economic growth, job openings are basically where they were a year ago."
  • Not So Fast  American Prospect blogger and Center for Economic and Policy Research co director Dean Baker counters Irwin, arguing that productivity cannot totally explain depressed job growth:
While productivity growth has been strong over the last year, growing by 5.8 percent from the fourth quarter of 2008 through the fourth quarter of 2009, this is common for a period of recovery. Productivity grew at a 6.9 percent rate in the four quarters from the first quarter of 2001 to the first quarter of 2002, a 5.4 percent rate from the third quarter of 1982 to the third quarter of 1983, and a 4.6 percent rate from the third quarter of 1974 to the third quarter on 1975. The rapid productivity growth seen in the last four quarters is a typical pattern at the end of a recession, it does not explain the lack of job growth in this recovery compared with the rapid job growth in prior recoveries. The difference is rather explained by the relatively weaker growth in this recovery.
  • Better Update My Resume?  Jonathan Chait at The New Republic get the last word: "Irwin speculates that workers, frightened for their job security, squeezed more productivity out of every hour. That's probably bad for bloggers like me"
This article is from the archive of our partner The Wire.