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December 10, 2009

The surge in productivity

The government recently reported we had a large increase in worker productivity during the summer. Translated, this means workers are able to produce more in a given time period. Is this a good or bad indicator for the economy?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, you can look at this in the long run and the short run. In the long run, it's very good, because improved worker productivity is how we achieve higher standards of living. But in recessions, it can take on other meanings. Typically during recessions, you do see productivity rise as businesses are trying to become more efficient. They're cutting back on what they view as waste. They're cutting down on the number of employees. And, quite frankly, they're making those remaining employees work more, work more and work harder. So that is why you see productivity go up. In the latest numbers from the government, we had an unprecedented rise in worker productivity. Many economists think this cannot be sustained. And what many economists are thinking is that this is actually a good sign as a forerunner to a turnaround in the job market in that businesses are not going to be able to sustain this high productivity. So if they want to continue to produce more, they're ultimately going to have to hire more workers. So again, this is another piece of the puzzle that suggests we may be getting to the end of the decline in employment, and we may in maybe four or five or six months start to see jobs come back."

Posted by Dave at December 10, 2009 08:00 AM