Worker output up in quarter, but 1.6% gain seen as modest

Productivity is the amount of output per hour worked. Rising productivity can increase corporate profits, but also slow job creation because it means companies are getting more from their current staff and don’t need to add workers.

WASHINGTON — U.S. companies got slightly more out of their workers this spring, the Labor Department said Wednesday.

Economists said the modest 1.6 percent annualized gain in productivity from April through June signals employers may need to hire more if demand picks up.

The increase followed a 0.5 percent decline in the JanuaryMarch quarter, less than first estimated.

Productivity is the amount of output per hour worked. Rising productivity can increase corporate profits, but also slow job creation because it means companies are getting more from their current staff and don’t need to add workers. But there are limits to how much companies can get from their existing work forces.

Productivity is increasing at a relatively weak pace. It is up only 1.1 percent compared with a year ago. Since 1947, productivity gains have averaged 2.2 percent a year. So companies may need to hire more workers if they see only modest gains in productivity and more demand for their products.

“In the near term, it is unlikely that firms will be able to increase output much further without proportional increases in hiring,” said Erik Johnson, an economist at IHS Global Insight. “Maxing out the efficiency of their existing work forces would typically encourage firms to hire more workers,” he said, though he cautioned that the economy “is on shaky footing right now.”

Labor costs rose 1.7 percent. That’s below the first quarter’s 5.6 percent increase, a much bigger gain than first estimated. In the past year, however, labor costs rose only 0.8 percent. That’s a sign employees aren’t getting big raises and indicates inflation will likely remain tame.

One reason productivity improved is that hiring slowed in the second quarter. Employers added an average of only 75,000 jobs a month from April through June. That’s down from an average of 226,000 a month in the first quarter.

The total amount of time U.S. workers spent on the job rose only 0.4 percent. That’s down from 3.2 percent in the first quarter.

At the same time, total output rose 2 percent. When output grows faster than hours worked, productivity rises.

U. S. employers added 163,000 jobs in July, the Labor Department said last week. The unemployment rate edged up to 8.3 percent. Hiring probably won’t accelerate from that level unless growth picks up or productivity slows, economists say.

Higher productivity increases corporate profits, but can slow hiring in the short run. In the longer run, higher productivity also raises living standards for workers. It allows companies to increase workers’ pay without pushing up inflation.

Productivity grew only 0.7 percent last year after rising sharply in 2010. The main reason productivity soared in 2010 was that it followed the worst recession in decades, when employers laid off millions of workers.

Economists said the trend is typical during and after a recession. Companies tend to shed workers in the face of falling demand and increase output from a smaller work force. Once the economy starts to grow, demand rises and companies eventually must add workers if they want to keep up. Roger Hedges (501) 378-3499 rhedges@arkansasonline.com