Employment Growth is Up, But Productivity Down. Why?

Ryan Cooper in The Week: “After a huge spike following the Great Recession, productivity growth has fallen to historically low levels. For the first quarter of 2015, the Bureau of Labor Statistics reported that productivity actually fell at a 3.1 percent annual rate.”

“Employment growth has been relatively strong, but output weak — and thus output per hour worked is down.”

Cooper attributes the problem to “weak aggregate demand. In 2015, we are seven years out from the worst economic crisis in 80 years. And though things have improved greatly since 2010, the problem is still not even close to being fixed.”

“Whatever one’s pet theory about how to increase productivity, it almost has to be the case that a tight labor market plays a role. Full employment — in which good employees are scarce and must be paid well — provides a powerful impetus towards increased productivity.”

“Weak aggregate demand … is both one of the most plausible explanations for the drop in productivity and a complete no-brainer to fix. You just dump money into the economy (literally) until inflation starts to kick up, and then back off. It’s really that simple.”