Workers fewer but more productive in ‘09

Fewer, working harder, for less - that was the American job picture last year.

One byproduct of the terrible labor market is that those lucky enough to still be drawing a paycheck find themselves doing the work of their unemployed former colleagues - and sending national productivity rates soaring.

“To date, businesses have been getting by in the recovery by increasing productivity rather than payrolls,” said Andrew Gledhill of Moody’s Economy.com. “Part of this is a confidence issue: Businesses are not yet convinced of the sustainability and strength of the recovery.”

According to government data for the second half of 2009 released Thursday, American workers produced considerably more per hour for notably less hourly compensation - a combination likely to generate a big jump in corporate profits.

Productivity, or output per hour, strongly increased, at annual rates of 7.8 percent in the third quarter and 6.9 percent in the fourth quarter, the Labor Department reported Thursday. For all of 2009, productivity surged 5.8 percent, its biggest four-quarter increase in more than seven years.

However hourly compensation, adjusted for inflation, plunged at annual rates of 3.8 percent during the July-September period and 2.8 percent during the October-December quarter.

The combination of soaring productivity and plunging compensation contributed to plummeting unit labor costs, which dropped by 7.6 percent in the third quarter and 5.9 percent in the fourth. Unit labor costs, which essentially measure what it costs firms to pay workers to produce a single “unit” of whatever they make, declined 4.7 percent during all of 2009. That was the biggest four-quarter plunge since record-keeping began in 1948.

Meanwhile, the prices businesses charged for their goods and services increased by 0.6 percent during 2009, according to the Labor Department’s report. The gap between rising prices and falling unit labor costs “is a good proxy for profit margins,” said Aaron Smith of Moody’s Economy.com. That gap “has never been wider in the post-World War II period,” he noted.

Corporate profits jumped at an annual rate of $123 billion in the third quarter after rising $28 billion in the second quarter. Fourth-quarter earnings will not be reported until late March.

After declining for four consecutive quarters, the U.S. economy expanded by 2.2 percent in the third quarter and 5.9 percent in the fourth, the Commerce Department reported.

“But, in a 30-year pattern that is now intensifying sharply, the benefits of increased output are not going to U.S. labor,” said Charles McMillion, president and chief economist of MBG Information Services, a D.C.-based economic-consulting firm.

“After tracking very closely for generations, labor output and labor compensation began to diverge sharply in the early 1980s,” Mr. McMillion said. Since 1980, labor productivity has increased 87 percent, while average hourly labor compensation has risen just 36 percent, Mr. McMillion said.

“The share of output received by labor has declined since the increased deregulation of domestic and international commerce in the early 1980s, but it plunged in 2009 to - by far - its lowest levels” since record-keeping began in 1947, Mr. McMillion said.

Productivity normally rises near the end of a recession and during the early days of economic recovery. Firms delay recalling laid-off workers or hiring new employees until they become convinced that the expansion will be durable and long-lasting.

Last week’s 29,000 decline in first-time claims for unemployment had more to do with a big jump the week before, when a weather-induced backlog was eliminated, economists said.

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