[OPE] The war against workers in the US...

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U.S. productivity boom a bust for workers
Mon Jul 20, 2009 4:42pm EDT

WASHINGTON (Reuters) - U.S. businesses are cutting workers' hours and jobs
at a pace that far outstrips the rate of the economy's contraction,
generating a productivity boom that in ordinary times would be a welcome
sign of healthy growth.

It is a bit of mystery why companies are downsizing so drastically, but the
consequences are clear. For Corporate America, it means a strong -- although
possibly fleeting -- rebound in profits. For employees, it means a dismal
job market is getting worse and may not recover any time soon.

"I don't think anyone fully understands this phenomenon," Lawrence Summers,
the head of President Barack Obama's National Economic Council, said in a
speech on Friday.

"One potential explanation is greater financial pressure on firms in this
recession has led them to do anything they can to shed cash flow commitments
by laying off workers at a more rapid pace or leaving jobs vacant when
people leave," he said.

Other theories posit that companies bracing for an even longer economic
downturn, or perhaps the economy was even weaker than official government
data showed.

Regardless of the reason, high unemployment is a political nightmare for
Obama and his economic team.

Summers said the jobless rate in this recession is running about 1 to 1.5
percentage points above what would normally be attributable to a slump of
this magnitude.

The unemployment rate hit a 26-year high of 9.5 percent in June, far higher
than the Obama administration envisioned when it pushed for a nearly $800
billion stimulus package early this year. Critics on both sides of the
political aisle have pointed to the persistently weak job market as evidence
that either the stimulus was poorly designed or simply too small.

WIDENING GAP

Productivity typically declines during recessions. Hiring workers is
expensive, so companies tend to hoard labor and wait out the slump, which
means costs stay high while output falls.

The fact that companies are managing to produce more with less labor is good
news for profits and helps explain why many companies have reported
better-than-expected second-quarter results in recent days.

But it could come back to haunt them if the weak labor market triggers
another spike in home foreclosures and credit card defaults, piling more
losses on banks just when the financial sector is starting to heal.

Total hours worked fell at about an 8 percent annual rate in the second
quarter, Labor Department data shows. Goldman Sachs economist Andrew Tilton
thinks second-quarter gross domestic product fell at a more modest 1 percent
rate.

"That's a 7-point gap, and there have only been a few instances in the last
50 years when it has been that wide," he said. "It's particularly unusual at
a time when the economy is not growing."

Indeed, the gap appears to have widened last quarter. In the first quarter,
when GDP fell at a 5.5 percent annual rate, the number of hours worked fell
at a 9 percent pace. Continued...

http://www.reuters.com/article/GCA-Economy/idUSTRE56J3KL20090720

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Received on Sun Jul 26 17:35:39 2009