What is up with the gdp-less recovery?

by on March 13, 2012 at 6:26 am in Economics, Uncategorized | Permalink

That is what people are calling it, although I would not use that term.  Jon Hilsenrath has the best overview I have seen, here is one excerpt:

Robert Gordon, a Northwestern University professor who tracks productivity closely, says he sees “clear signs everywhere” that a productivity slowdown is happening. Last year, productivity—measured as the output of workers for every hour they work—grew just 0.4% and has grown at a 0.9% annual rate over the past seven quarters. Productivity did spurt higher in 2009—during this stretch of fear-induced firing—but over a longer stretch it shows additional signs of slowing. Worker productivity has grown at an annual rate of 1.7% since 2004, down from 2.6% growth in the decade before that.

Mr. Gordon agrees with Ms. Romer’s overfiring story. But he says the longer-run threat to productivity shouldn’t be overlooked. “The productivity numbers have been dismal,” he says. That is an explanation this fragile economy can do without and that policy makers shouldn’t ignore.

I don’t myself see an additional short-run fall in productivity (I don’t much trust the short-run statistics in any case), though of course I have been a productivity pessimist more generally.

First and foremost, I see the very latest data as evidence for the Garett Jones hypothesis.  Employers are going back to the idea of investing in workers who build up the future of the company, but who may not produce much output now.

Second, higher exports and moderating health care costs (the latter over the last two years) mean that “real gdp” is higher than traditionally measured gdp; see for instance Matt’s remarks.  This supports Michael Mandel’s view about the importance of offshoring and, presumably, reshoring, to the extent that is going on.  In general we undermeasure the gdp gains of successful export nations, because their outputs tend to have lower percentages of rent-seeking expenditures and more real stuff of value.

Karl Smith has interesting posts on related questions.  Scott Sumner wrote an early and important post on the same topic.  His bottom line was this:

So what are the likely explanations?

1.  Trend growth really is slowing somewhat.

2.  People are leaving the labor force.

3.  RGDP data is measuring “payroll GDP,” not household GDP

Rich Berger March 13, 2012 at 9:34 am

I think it’s cute how TC calls him Matt.

charlie March 13, 2012 at 9:38 am

Growth is only in grey market sector that weren’t properly measured before.

Coupons clipping, secondarly sale markets for cars, AirBnB.

The massive resale value of iphones is an example. A 5 year old iphone 2G is selling for $150.

spencer March 13, 2012 at 10:31 am

The related question is how much of the recent improvement in the employment data is due to slower productivity growth rather than stronger real GDP growth?

Becky Hargrove March 13, 2012 at 10:57 am

Greater need exists in parts of the economy where productivity is ‘not so great’, that is, services. However such productivity is more substantial than what can be measured through GDP growth, just not easy to express in monetary terms as it happens in human capital. Some hiring is possible in services now in the places where other sectors have picked up, but hiring in services will continue to be suppressed where the tax base hasn’t really recovered.

Mike March 13, 2012 at 12:14 pm

“In general we undermeasure the gdp gains of successful export nations, because their outputs tend to have lower percentages of rent-seeking expenditures and more real stuff of value.”

Would anyone mind fleshing this out for me?

zewei March 13, 2012 at 10:07 pm
Yancey Ward March 13, 2012 at 10:55 pm

Hard to sell bullshit to a foreigner?

Collin Reid March 13, 2012 at 1:50 pm

Overall, I would agree with the combination of Mandel’s off-shoring productivity gains and companies have to go back to worker training. I suspect there is a lot of office “on-shoring” from India in terms of call centers, back room reporting and IT support within the US office environment. While not great jobs, these jobs are entry level positions that an inexperience over educated person can receive a lot of informal training from a company. This happened to a lot of 1990′s slackers for a few years.

Has India reached the middle income trap as their economy is really have high inflation and very weak currency? I think India, not China (who has a S&L limited financial crisis written by Michael Pettis), is the BRIC to have the next financial crisis.

Donald Pretari March 13, 2012 at 2:49 pm

“Productivity did spurt higher in 2009—during this stretch of fear-induced firing—but over a longer stretch it shows additional signs of slowing.”

I’m going to stick with what I wrote then:

“2:36 pm February 6, 2009
Don the libertarian Democrat wrote :
“More and more businesses are cutting jobs in anticipation of tougher times.”

This is what’s happening. Employers are cutting jobs proactively in anticipation of a deep bottom. It’s a Proactivity Run. It is evident in Fisher’s Debt-Deflation. This also explains why productivity is rising.

Since this run began in the middle of November, these figures mean that we are losing to Debt-Deflation. Since we’ve been trying to avoid this, what we’ve done hasn’t worked. Government needs to take bolder actions, including the Fed.”

http://blogs.wsj.com/economics/2009/02/06/economists-react-jobs-report-shows-slow-motion-train-wreck/tab/comments/

A UK reader March 13, 2012 at 3:07 pm

This has been observed in UK data for some time. It even has a nickname here: The Productivity Puzzle.

http://www.economist.com/blogs/freeexchange/2012/02/whats-ailing-british-productivity

If you look at the latest Inflation Report from the Bank of England …

http://www.bankofengland.co.uk/publications/Pages/inflationreport/ir1201.aspx

… and go to the Output and Supply section, there is a box dedicated to the time-path of output per hour worked in manufacturing, services and the entire economy. On that level, it appears very much as though the crisis had a one-time level effect on productivity, although looking at the sub-sector level there is fair dispersion.

Bill March 13, 2012 at 3:42 pm

Isn’t there a simpler possible explanation? The enterprise number is up, the household number is up even more. That suggests that new hiring is occurring at a greater rate. Wouldn’t productivity normally go down as a result, due, if to nothing else, simply the learning curve?

The Original Frank March 13, 2012 at 6:17 pm

“First and foremost, I see the very latest data as evidence for the Garett Jones hypothesis. Employers are going back to the idea of investing in workers who build up the future of the company, but who may not produce much output now.”

Now I finally understand why I have a job! :-)

Pat MacAuley March 14, 2012 at 12:42 am

“In general we undermeasure the gdp gains of successful export nations, because their outputs tend to have lower percentages of rent-seeking expenditures and more real stuff of value.”

Wouldn’t the converse of this also be true? ie., “We over-estimate the GDP gains of unsuccessful export nations, because their outputs tend to have higher percentages of rent-seeking expenditures and less real stuff.”

I assume that the USA is an unsuccessful export nation, if we count net exports rather than gross exports. (Trade deficit of $560 billion in 2011, up from $500 billion in 2010.) Looking at the US economy, aside from a few sectors such as soybeans and airplanes, most US jobs are in government, retailing, and private services which are tough for imports to compete in.

Mel Tisdale March 14, 2012 at 6:03 am

There are other productivity issues that need to be considered. Since the last major economic downturn the world has become far more technical in nature and far more global in operation.

The technical nature of business will naturally lead to a longer period being required before new employees are up to speed in using the technology their work requires. This will affect productivity. The fact that business is more global will tend to mean that different business functions are ‘bought in’ from other parts of the group in other parts of the world. For instance, if a country, such as the U.K., manufactures a car designed and planned in Japan, the productivity of the U.K. plant is seen as having a far higher productivity compared with that of indigenous companies that do everything in-house. These companies thus have a far higher number of employees performing the essential tasks that the other plant has imported as finished product in the form of data from Japan. While from a productivity viewpoint it is better to import the completed function, from a nationalistic viewpoint it means that the country is lacking essential skills that cannot be acquired quickly. They need experience in addition to academic qualifications. A good old English English word is ‘nous’. (I hope that that does not mean anything rude in American English.) It is a salutary thought that should the Japanese company decide to move manufacturing to another country all that the U.K. will have is a lot of unemployed workers and a large expensive, specialised, and redundant, building.

dirck March 14, 2012 at 6:50 am

I suspect that the tsunami of new regulations coming out of Washington is causing the reduction in productivity .

bmcburney March 14, 2012 at 12:52 pm

It seems to me that the productivity question is even more interesting than this post and the others implies. The recovery from the prior two US recessions was marked by an increase in productivity and so was the beginning of the current recovery (such as it was/is). It is only recently, as we enter a Presidential election year, that official BLS jobs numbers have improved.

Meanwhile, however, the unemployment rate remains essentially unchanged and looks even worse if you control for people leaving the work force. The Gallup survey also shows no decrease in unemployment and a higher rate than the BLS. Yglesias seems to think the GDP numbers are wrong and Cowen seems to agree. Maybe other numbers are wrong.

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