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January 22, 2014


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Neil Wilson

Or could it be that the productivity figures are misleading - because business hasn't responded to the recession in the way marginalists believe.

Unemployment didn't go up by very much, and productivity went down. So there was an amount of labour hoarding going on - essentially the private sector was paying 'unemployment benefit' and automatically stabilising their demand at a subdued level, but enough to justify the decision to retain staff.

That should start to reverse as demand picks up again from the additional wages.

We shall see.


Neil, anecdotal, but that's exactly what has happened at the manufacturing company I work at.

Luis Enrique

Krugman is talking about productivity as in the production possibility frontier (productive potential), all these data on UK productivity reflect capacity utilisation (and productive potential). These distinctions are basic but get lost too often.

Neil Wilson what makes you think labor hoarding is a foreign idea to marginalists? I imagine all you need is a model with job-specific human capital , costs of hiring, training etc. and it will predict profit maximizing firms will hoard labour in a recession.

Nick Bradley

This is great - thanks.

The United States has 95 million adults who don't work, 25 million 25-54 year olds who don't work.

It would take a really long time to run out of slack labor capacity.

Nick Bradley

correction - 30m+ 25 to 54 year old americans who aren't working.


The word productivity smacks of widget factories and clipboards and obvious improvement measures. But what is productive work? For example, does turning down planning applications count, or giving obfuscative legal advice to lardy lords, does delaying airport runway planning until after an election count and does the current NoW trial count as productive work?

Now all these activities result in some money being shuffled around and I can see how a humble burger-flipper adds to the common weal but I cannot help feeling that a lot of 'jobs' are concerned with pushing the world forwards and backwards with little net effect. Is there a measure for this phenomenon - for 'productive' does not seem quite the right word.


@ Neil, Pablo - A few months ago, I was sympathetic to the labour hoarding idea. However, the fact that productivity growth hasn't picked up, despite a strong recovery in output since the spring, is inconsistent with it. This just deepens the puzzle of why productivity's stagnated.

Socialism In One Bedroom

I am more aware of firms keeping people on, especially in manufacturing, but on reduced hours. So they wrk 4 days out of 5 for example.

rogerh - the more the burger flipper is productive the more pressure there is on the doctor to be productive, in treating heart disease, among others. The less productive the environmental health inspector the more productive the anti disease people have to be. Your view of 'productive' smacks of nursery school reasoning to me.

From Arse To Elbow

@Chris, the weak productivity growth could reflect the degree to which the effects of labour-hoarding in 20090/10 have become the norm since (i.e. a form of hysteresis). This would be consistent with the low levels of capital investment over the period.

If business investment picks up over the next 12 months, we could see productivity begin to grow faster again, however this might also result in employment growth slowing down.

Deviation From The Mean

"So there was an amount of labour hoarding going on - essentially the private sector was paying 'unemployment benefit' and automatically stabilising their demand at a subdued level, but enough to justify the decision to retain staff."

What are the mechanics of this? Firms pay people while they produce nothing - cash flow, profit implications? Or firms produce something and build up stocks of unsold goods? In which case, it is surely wrong to call this paying 'unemployment benefit'. Also, getting rid of skilled workers in a short term downturn can be very costly in the long term.

The Blorch

The less people work, the more they resort to crime as a way of deriving income from the criminal industrial complex. This creates demand for more police and guards guarding the incarceration factories. So eventually, everyone is either incarcerated or working in the criminal justice system and at the point we have equilibrium.


rogerh posed the right question here.

The term productivity belongs to the age of mass semi-automated manufacturing.
It does not apply directly to service industries nor to mass manufacturing done by robots. It does not apply to zero hours contract employment in the same way as full-time employment. The zero hours worker works only when work is 100% available - the full time worker may only work productively for 2 hours a day.
If construction imports pre-fabricated buildings and assembles them on site then "productivity" soars but no one is working any harder.
If Google doubled its tiny staff then "productivity" would halve but profits hardly change at all or possibly rise.

Value added employment is the better way to think of things. Can the employer reliably and sustainably charge his customer or client more than cost?

Socialism In One Bedroom

Productivity isn't really a measure of people working harder but is more a measure of technological development, i.e. pre fabricated buildings represent an increase in productivity over previous methods of constructing buildings.

Incidentally, the more productivity increases the more can resources be applied to areas such as Planning development officers, legal advisors etc etc

"Can the employer reliably and sustainably charge his customer or client more than cost?"

The answer is no, Mercantilism, as this is called, leads to the ruin of the producer. You can make money from cheating in some circumstances, private companies often make money this way via government contracts (fleecing the public purse), but a sustained level of cheating the customer/client will not lead to growth and is not what marks out capitalism.

George Carty

I thought "mercantilism" referred not to the policy of any individual business, but to a national policy of hoarding gold (or in more recent times, exporting unemployment) by running a foreign trade surplus.


I thought it was buying low and selling high??

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