Very little about the 2010's slow recovery should surprise us except the unemployment rate, according to a new report from the Federal Reserve Bank of Cleveland.
Why is unemployment so much higher than expected? Everybody has their own explanation. Matt Yglesias might point out that the stimulus was expressly designed to raise production rather than employment. Northwestern economist Robert Gordon might cite all sorts of reasons why employment hasn't recovered after the last few recessions, such as executive incentives to juice earnings reports by keeping hiring down. More conventionally, we might blame globalization and technology for hollowing out the middle class while health care inflation nibbled away at median wages.
Fed senior economist Kenneth R. Beauchemin has another explanation. You're working too damn hard. Yes. You.
While the model expected the unemployment rate to have fallen to an average of 8.0 percent last quarter, the actual rate remained stubbornly high at 9.7 percent for two consecutive quarters, and it is currently flirting with the upper probability band marking the 95th percentile.
A fair bit of the back-story here is doubtlessly the tremendous productivity growth recorded during the past year, which has allowed businesses to stretch existing labor, finding efficiencies where they could, with workers who were quite happily employed despite the extra effort they were required to expend. But that just pushes the puzzle into a deeper realm.
Productivity is good thing. But too much of a good thing, remember, isn't necessarily great. Productivity tends to rise during times of high unemployment, because workers feel lucky to have a job and employers squeeze the few workers they have before committing an extra $70K on a new employee's wages and benefits. That's one reason why some economists cheered the news that productivity fell in the latest report. Smaller output-per-hour (that's what productivity measures) is bad for corporate earnings, but good for workers if it means that companies have squeezed the employees dry and have no choice but to hire more.