Increasing Productivity Is A Double-Edged Sword
-- June 4, 2003

Worker productivity grew at a 1.9% annual rate during the first quarter, almost three times as fast as the last quarter of 2002, according to the Labor Department. That sounds good -- but increasing productivity is a double-edged sword.

Sure, businesses and corporations benefit in the short run: They simply squeeze more and more productivity out of the same number of workers. That boosts the bottom line -- without the expense of hiring new workers. In other words, businesses are getting a sort of free ride on the backs of workers.

But therein lies the problem. Overburdened workers can handle only so much. New innovations aren't developed; new jobs aren't created. And that means there is less and less income to get pumped into the economy. As a result, both growth and workers get hammered in the long run.

In fact, while these productivity gains materialized during the first quarter, businesses were busier than ever cutting jobs: Between February and April, an astonishing one-half million jobs vanished into thin air. Plus, the number of workers who continue to receive unemployment benefits is at record levels.
The fact that businesses are turning to productivity gains -- and avoiding hiring workers -- speaks volumes about how they really feel about their future prospects. If they felt good about those prospects, they would be adding workers, not cutting them -- and using the gains in productivity to makes things even better.

related article: 1st-Quarter Productivity Grew at 1.9% Annual Rate