Saturday, June 25, 2011

Slower Growth, Not Higher Productivity, Behind Weaker Labor Market

In a post a few days ago, I argued against the "technological" explanation for high unemployment in America.

One way of testing this is by looking at productivity. If productivity growth increased, then it could be argued that it is at least a partial explanation. If not, then it would not seem applicable.

And the numbers suggests that this is not an applicable explanation. Total average annual economy wide productivity growth* fell from 1.95% between 1991 and 2000 to 1.5% between 2001 and 2010.The reason why employment growth still fell from 1.4% in the 1990s to 0.15% in the 2000s was instead that growth fell from 3.4% to 1.7%.

*=Calculated by dividing GDP by the number of employed according to the household survey. This is not to be confused with the official "productivity" numbers separately released that only covers a limited part of the economy. 


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