Some of us (well at least me) are surprised that an economy growing at a rate of 2.0 percent or less can create around 1.8 million jobs a year. That doesn't seem to fit. We had been seeing productivity growth of close to 2.5 percent. At that rate the economy could grow 2.0 percent a year with no additional labor. So what is going on?
Well, we aren't seeing productivity growth of 2.5 percent a year any more. In fact, in the last two years productivity growth has grown at less than a 1.0 percent annual rate. This is a sharp departure from the pattern in past upturns where we have seen strong productivity growth in the first years of the recovery.
Source: Bureau of Labor Statistics.
This is the secret to job growth in this recovery. The question is whether the slowdown in productivity growth is permanent or just a response to a weak economy. The latter story would be that workers are taking low paying and low productivity jobs because there is nothing else available. This would be the more optimistic scenario since it would mean once we ever got a policy that actually generated demand we would return to a path of healthy productivity growth.
Remarkably, we have a whole group of policy types running around worried that we won't have any jobs because robots will displace everyone. This is occurring at a time where the data is showing the exact opposite with the recent stretch of slow productivity growth. This would be amazing until we remember that these are the folks that took the Reinhart-Rogoff story seriously for the last three years.
The X-axis shows productivity in the first 15 quarters of the recovery (except for the 1970-73 upturn, which didn't last that long). For reasons unknown to me, the tick marks disappeared in the transition from Excel. Obviously this is yet another Excel spreadsheet error.