A recent report by the Bureau of Labor and Statistics has found that Workforce Productivity of US labor has increased steadily since mid-2008. The latest report shows that productivity in Q4 of 2010 increased at a rate of 2.6% annualized.
The government defines labor productivity as real output divided by total hours worked of all persons.
How does this reflect the current economy? How is it possible that US labor productivity has increased in the same period of the recession? While output has decreased, total hours worked has decreased even further. This shows that output has decreased at a slower rate than loss in employment. Even as the economy recovers and output is now increasing to levels pre-recession, employment is still not growing and employment costs continue to be staying the same or decreasing. All of this means that companies are doing the same with less people.
Is the increase in productivity sustainable or are there signs that things are changing? After an initial reduction of employment, the report shows that there has been a slight increase in total hours worked but a continuation decrease in labor costs. As companies continue to shed payroll, current employees are working longer and longer hours to meet company goals and demands. At some point this is not sustainable. What impact on employee morale, engagement, and performance will prolonged stress have? Companies need to have the proper measurements in place to quantify the value of their workforce, to track changes in employee morale and engagement, and the ability to effectively plan their future workforce needs in the current environment. Employees will no longer be able sustain long hours and employers will be forced to start hiring. The question is when will the tipping point occur and are companies ready?
Nathan Tan
