The problem of employment recovery in the past had been the tendency for employers to meet the increased demand by working their current labor force longer hours. This shows up in the statistics as increased labor productivity. The graph below shows the trend for the business sector.

An increase in output per hour that comes from higher productivity due to better equipment or methods is a good thing for the economy. An increase in output per worker that comes simply from working people longer and harder is not really an increase in productivity and is not beneficial to the economy.

The productivity figures are worth looking at in detail. The table below gives the recent indices of not only productivity but also real compensation per hour and unit labor costs. As the figures show although the real compensation paid per hour has been increasing the cost of labor per unit of production generally has been declining since the third quarter of 2001. This is a dramatic development for the U.S. economy.

(To be continued.)