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Monday, March 22, 2010

Global Productivity and Unemployment

The Economist details:

Producing more by working less is the key to rising living standards, but in the short term there is a tension between efficiency and jobs. America and Europe have managed this trade-off rather differently.

America has gone on a diet: it has squeezed extra output from a smaller workforce and suffered a big rise in unemployment as a consequence. Europe, meanwhile, is hoping to burn off the calories in the future. It has opted to contain job losses at the cost of lower productivity. That probably means America’s recovery will be swifter. Further out, productivity trends in both continents are likely to be uniformly sluggish.
Below is a chart showing just how varied the economic results have been between the U.S. and the fifteen member EU-15 have been.

Longer term, the chart below shows just how much more the United States has been able to squeeze out from its workers over the previous few decades (and I threw in Brazil to show just how sizable the growth potential is for emerging market countries simply to "catch-up" to the developed world).

The interesting thing is related to timing of the chart. Just a few years ago when unemployment was much lower and average hours worked per week was much higher, the chart would have looked much different. It was at that point in time that the European countries were more productive with their workforce as they tended to work much less.

Now the question becomes how much more will we really be able to squeeze out of those workers left? At some point that answer is "not much" and companies will be forced to hire.

Source: Conference Board / The Economist