In the mid 80s, 5% unemployment was considered full employment. There was a certain level of unemployed people who were considered unemployable. It may be that we are heading back to those days.
80/20 Rule
The reason is that American businesses learned a valuable lesson in business dynamics this time around. We have all heard the 80/20 rule. As a wise man said, “Your top 20 employees have the capacity to complete 80% or more of the work. They will rise to the challenge to get it done.” And this is true. The dynamic is that 20% of the workforce can complete 80% of the work. This recession proved the point.
In the beginning of the recession, it became acceptable to fire people. This momentum increased until the second quarter of 2009, when private-sector employment hit its lows and the momentum turned positive. In fact, businesses were criticized for “not” letting people go.
Productivity Soared
Then in 2009, productivity soared. Year-over-year productivity rose to 5.8% in the fourth quarter of 2009. Nonfarm productivity came in at a strong 6.2%. This is not only a tribute to the American work ethic, but it also solidifies the notion of the 80/20 rule.
One could also argue that employees stepped up their productivity to avoid being scrutinized for potential layoffs.
The Recovery Continues
The productivity boost strongly suggests that businesses used the recession to gain efficiencies. This can only be a positive as the economy continues the recovery it began a year ago. Most likely, better use of technology came into play to make workers even more efficient. To remain in business, businesses have had to think smarter, and this can only be good for future performance.
It is unlikely that businesses will go back to pre-recession levels of productivity! And this may bode a weak level of hiring and overall higher unemployment than what we have been used to in recent years.
Good News, Despite the Media’s Focus
Hours worked edged up a tiny .6% after a 5.3% annualized drop in the third quarter of 2009. With fewer workers employed and less hours worked, year-ago labor costs declined 4.7%. These savings have kept more businesses afloat during this recession and have made profitable businesses that much more profitable. This can only be viewed as good news.
Yet, the media focuses relentlessly on those unemployed. Businesses have responded with confidence by adding to inventories, which was even more pronounced in the revised GDP of positive 5.9%. Yet the media criticized the increase in inventories as “fictional” economic growth.
Applaud the American Workforce
Instead of looking critically over the shoulder at the past, we should applaud the resilience of our nation’s economy after a severe financial tsunami. We should also applaud the efforts of the American workforce.
Give Them What They Deserve
However, we should beware when the media cries “Inflation!” and our highly efficient workforce asks for more compensation as the economy picks up steam. Higher unit labor costs are not a bad thing when we have seen such a level of productivity gains.
We should remember how these employees helped our economy during the recession and give them the deserved percentage of the fruits of their labor.