High productivity growth is good news (+2.6% annualised in Q4). But combine it with low wage and employment growth and you get a big part of why inflation has been so low – and why it may stay that way. Employers’ labour cost per unit of output is falling.
Labour is the single biggest cost of almost any company. If it is falling they are most unlikely to be raising their prices. Read more
There is a flipside to the diverging unemployment trends in US (up, sharply) and eurozone (up, relatively modestly) about which we have blogged frequently on Money Supply. The European Central Bank’s monthly bulletin today highlights how productivity trends have also diverged – see the chart on the left. While the US has maintained productivity growth rates in the pre-crisis range, eurozone productivity has fallen.
There is one obvious explanation. Government-sponsored short time working schemes in Europe have enabled companies to keep on staff, even though production has fallen steeply. But the ECB says the story of US/eurozone divergence holds true whether productivity is measured per person employed or per hour worked, and argues that the eurozone has been weaker at investing in productivity enhancing technologies. Read more
More encouraging unemployment figures from the UK exacerbate the divide between most European labour markets and that in the US this recession. There are many possible explanations writes Chris Giles of the Financial Times, but the result must be a more optimistic Bank of England when it examines the prospects for recovery. Read more
International comparisons of productivity do not yet show the huge differences that have occurred in 2009, writes Chris Giles of the Financial Times. They still show a smooth path, one that will not continue when the 2009 figures are finally published. Read more