2009 August 12 Wednesday
Rising Unemployment Boosts Productivity Of Workers

The people still working are more productive.

U.S. productivity staged its biggest gain in nearly six years in the second quarter despite the contraction in the overall economy, suggesting companies have adjusted to the recession by cutting jobs and workers' hours.

Nonfarm business productivity rose a higher-than-expected 6.4% at an annual rate last quarter, the most since the third quarter of 2003, the Labor Department said in preliminary figures released Tuesday.

When companies lay off people and productivity rises this means they are laying off lower productivity workers. Why don't they just cut wages of lower productivity workers?

In early 2009 high school graduates had twice the unemployment of college graduates. Less educated and lower productivity workers get laid off more. Why is that? Why don't employers just pay the less educated less money and use them just as much? I figure part of the explanation has got to be such low productivity that the transaction costs of dealing with low productivity labor end up higher than the value produced by low productivity workers. A growing ranks of unemployable people might be the long term result. Why deal with frustrating workers of unknown quality when robots beckon?

James J. Heckman and Paul A. LaFontaine said in a February 2008 report the income gap between high school graduates and drop-outs is soaring and yet drop-outs are rising.

During the past 25 years, growing wage differentials between high school graduates and dropouts increased the economic incentives to graduate high school. The real wages of high school dropouts have declined since the early 1970s while those of more skilled workers have risen sharply.1 Heckman, Lochner, and Todd (2008) show that in recent decades, the internal rate of return to graduating high school compared to dropping out has increased dramatically and is now over 50 percent. Therefore, it is surprising and disturbing that, at a time when the premium for skills has increased and the return to graduating high school has risen, the high school dropout rate in America is increasing. America is becoming a polarised society. Proportionately more American youth are going to college and graduating than ever before. At the same time, proportionately more are failing to complete high school.

Black and Hispanic graduation rates are much lower - and they are growing portions of the US population.

After adjusting for multiple sources of bias and differences in sample construction, we establish that (1) the U.S. high school graduation rate peaked at around 80 percent in the late 1960s and then declined by 4-5 percentage points; (2) the actual high school graduation rate is substantially lower than the 88 percent official estimate; (3) about 65 percent of blacks and Hispanics leave school with a high school diploma and minority graduation rates are still substantially below the rates for non-Hispanic whites. Contrary to claims based on the official statistics, we find no evidence of convergence in minority-majority graduation rates over the past 35 years. (4) Exclusion of incarcerated populations from the official statistics greatly biases the reported high school graduation rate for blacks.

The growing ranks of unemployed are less educated.

* Department of Labor data show that among high school dropouts over the age of 25, the unemployment rate in June 2009 was 15.5 percent -- almost double the June 2008 rate of 8 percent.

* In June 2009, the comparable unemployment rate for high school graduates with no college was 9.8 percent, or just over the national average of 9.5 percent.

From October 2008 note the racial break-down in unemployment for high school drop-outs.

The unemployment rate for out-of-school youth age 16 to 24 was 14.2 percent in October 2008. Among the educational attainment categories, unemployment rates for youth not in school were highest for those with- out a high school diploma--26.3 percent for young men and 25.0 percent for young women. In contrast, the unemployment rates for young male and female college graduates were 8.7 and 6.6 percent, respectively. Black out-of-school youth had an unemployment rate of 23.7 percent in October 2008, compared with 12.4 percent for whites, 15.1 percent for Hispanics, and 7.3 percent for Asians.

Share |      By Randall Parker at 2009 August 12 12:06 AM  Economics Labor

Eric Johnson said at August 12, 2009 8:49 AM:

> suggesting companies have adjusted to the recession by cutting jobs and workers' hours

Almost certainly, another cause of the productivity hike is increased competition to not get sacked.

Stopped Clock said at August 16, 2009 6:58 PM:

Why don't employers just pay the less educated less money and use them just as much? Seriously, you wonder? The answer is obvious: they would have to go below minimum wage. Most unemployed people are unable to find even a minimum wage job.

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