Understanding The Correlation Between Low Unemployment And High Productivity

On a basic level, you probably understand what worker productivity is, i.e., a broad measurement of the output generated by the workforce. But unless you’ve got an economics degree, you might not fully realize how integral this somewhat nebulous factor is within the larger economic system.

And, despite a year spent fretting over inflation, high interest rates, and a potentially looming recession, 2023 was a good year for productivity.

Cause and effect

As the jobs market approached pre-pandemic normalcy last year, the stars began to align for an improvement in worker productivity — and sure enough, that’s exactly what experts found. There are several ways to boost output, and two of the most prominent appeared to be responsible for the impressive results recorded last year.

For starters, a long period of low unemployment has increased the pressure on employers to raise wages, but by doing so they’ve had to figure out ways to justify the cost through increased productivity.

The second factor is technology, which has long played a role in increasing productivity but has accelerated tremendously in recent years.

But will it last?

There are still some fundamental questions about the health of the U.S. economy, with the inflation rate still stubbornly high and the Federal Reserve unwilling to make a commitment about interest rates. Nevertheless, consultant Rich Lesser explained, both productivity and wages remain high.

“Right now most companies don’t feel like they have anywhere near the pricing power that they had a year or two ago,” he explained. “And yet wages continue to go up 3 or 4 percent.”

In some cases, as with fast-food chains required to implement $20 minimum hourly wages, productivity comes at the expense of jobs. Many of these businesses have laid off workers in favor of implementing self-service kiosks.

Chris Agee April 25th, 2024

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