Thursday, February 4, 2010

Good news, bad news

The good news is that productivity rose by 6.2% (seasonally adjusted) in the fourth quarter. The bad news is that unemployment is still rising. How is this possible? Firms are squeezing more productivity out of the workers that they already have and not hiring any more. Much of the gain was from the Manufacturing industry, which has been steadily increasing production.
The rise in productivity is really very good news. According to an article on Forbes.com, higher productivity raises living standards in the long run. Also productivity often increases at the end of a recession. Despite the good news, unemployment has continued to rise and that has caused concern from investors who worry about how long this recovery will take. Eventually the rise in productivity will be unsustainable without the increase of new workers.

"You can push your workers but so far," said Anika Khan, an economist at Wells Fargo ( WFC - news - people ) Securities. "At some point businesses have to begin to hire."


The real question is if productivity continues to rise, when will businesses begin to hire?
Wells Fargo expects that unemployment will peak in the second half of this year at 10.5%.
All of this looks promising, like a good sign that we are headed into the expansion period. Is this information better described by a NeoClassical view that the market will always reach equilibrium at maximum output, or does it support the Keynesian Model?

9 comments:

  1. I can totally relate to this article. For a while now, the company my mom works at has been letting people go. Like the video we watched today, it's been people who have been working at the company 30 years or so. As a result, my mom and others still employed are having more work to do each time someone is let go. This is putting a strain on the company, a strain on the workers, and a strain on their families. The company has actually had to hire some of those people back because the burden was so great on those who were left to cover.

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  2. Cierra, my mother is in the same boat as yours. She was fired two years ago and now she is reapplying for almost the same job she had before. She worked there for 26 years. They gave her about a 4 months notice though, so the idea of not working for the only company she's ever worked for was not as shocking. (E)

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  3. My father's situation is a little different. My dad works for a company that let go of a major portion of their employees. He was lucky he was not let go and we are very thankful for that. The building he worked in closed to save money and he must work out of the house. He worked in the K-mart Headquarters over in Troy. Everyday is a scare because I never know when my dad is going to lose his job. The company is still trying to cut workers as much as they can to save money, but this recession has caused many people to start shopping in cheaper stores such as K-mart. I see some new job openings in the near future if productivity gets even higher. (E, A)

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  4. I think businesses will begin to start hiring additional workers once they start turning a more steady profit. It isn't very practical to add workers when there is barely enough to go around as is. Consider looking at a ppf graph. The companies are producing at the curve and there is no incentive for economic growth because that would be less for everyone. A

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  5. One thing I ask is how much of the growth is sustainable?
    When you look at third quarter expansion of 2.8 percent and realize that most of this growth is due to incentives, you start to question 4th quarter growth.
    this isn't being helped by the working age population increasing by about 1% each year..
    Everyone's saying different things about the unemployment rate, but those who are making the most convincing arguments put the peak at at LEAST 10.5%, maintaining that for at least a year.
    So how much growth do we need to actually increase employment?

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  6. Well this is definietly some nice news to hear. Today in class when we were talking about how this recession isn't nearly as bad throughout the whole US as it is in the midwest I was kind of surprised I hadn't realized that it was as isolated as it is. That being said, hopefully this increase in productivity does some good for places like Michigan.

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  7. Building off of what Nick said, I believe business's will begin to hire employees once they start making a sustainable, steady profit. With productivity being up, even with some companies having as few workers as they possibly can, this is a good sign that unemployment will begin to decrease. I say this because, with productivity increasing with the existing work force, companies will begin making enough profits to where they can slowly begin to hire employees. Slowly, but steady, I believe we will soon seeing company's hire more and more employees in the very near future. (A)

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  8. I think businesses want to make sure that there recovery is happening before they start re-hiring people. Therefore it is possible that economic recovery may be happening but stores are not rehiring yet to be safe. I also feel that jobs might be relocating in this economy to more advantageous climates instead of closing, so we may not know the true impact of the recession until then.

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  9. I've read many similar articles recently, it's hard for me to understand why the unemplyoment rate keeps rising while the economy starts to recover. I think the situation will get better and it's just the matter of time now, hopefully the factories will begin to hire workers soon.

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