Productivity and Jobs

There is an interesting piece on productivity in today’s Daily looking at the changing relationship between output change and employment change in recessions, over time and as between Canada and the US. One part of the story is that employers used to hoard labour during recessions, but are now inclined to cut jobs and hours quickly in response to a fall in output.

It notes one interesting feature of the current (recent?) downturn – low and even negative productivity growth have limited the impact of the sharp GDP decline on jobs in Canada, whereas in the US employment has been cut significantly faster than output.

Why the difference?

“The reasons for the greater reliance of employers in the US on job cuts in 2008-2009 while Canadian employers resorted about equally to changes in the average workweek and employment are not yet clear. Credit flows to firms in the US were more impaired, providing a greater urgency for firms to achieve significant cost savings. As noted earlier, employers initially rely on shorter hours than job cuts in a downturn given the uncertainty about the severity of the recession: the upheaval in the US financial system, which clearly signalled a sharp downturn, meant that there was less uncertainty in that country about the severity of the 2008 recession. Labour laws in the US may make for a lower cost in letting workers go than do the laws in jurisdictions in Canada. And the memory of the difficulty in finding workers in some parts of Canada may have led employers to wait until the severity of the recession was fully revealed (which turned out to be less than widely expected).”

I’m not sure I find this very convincing – Canadian labour laws don’t force employers to keep workers they don’t want; and labour shortages were not a generalized problem before the recession. Credit access and the depth of the US crisis may explain things. EI worksharing may also have made a difference here.

The really interesting question is what happens next.  Given working population growth of 1% and expected output growth of about 2.5%, if productivity growth picks up to  the trend rate of about 1% to 1.2% in 2010, unemployment will fall  only marginally. If productivity growth picks up even quite modestly as hoarded labour is put to use,  unemployment will continue to rise.

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