The official unemployment report comes out on Friday, but today we learned that private sector jobs actually decreased, which was far below expectations. If we do see any job growth in March it will be due to government sector hiring, particularly for short-term jobs with the US Census.

You can analyze this data one of two ways: either there isn’t enough demand in the economy to justify additional hiring at this point, or companies have figured out how to produce the same amount of goods and services with less workers. Neil Irwin argues the latter in the WaPo today.

When workers become more efficient, it’s normally a good thing. But lately, it has acted as a powerful brake on job creation. And the question of whether the recent surge in productivity has run its course is the key to whether job growth is finally poised to take off.

One of the great surprises of the economic downturn that began 27 months ago is this: Businesses are producing only 3 percent fewer goods and services than they were at the end of 2007, yet Americans are working nearly 10 percent fewer hours because of a mix of layoffs and cutbacks in the workweek.

That means high-level gains in productivity — which in the long run is the key to a higher standard of living but in the short run contributes to sky-high unemployment. So long as employers can squeeze dramatically higher output from every worker, they won’t need to hire again despite the growing economy.

To the extent that there actually is a boom in worker productivity, it probably comes from workers being forced, upon threat of firing, to do more with less. This has been a corporate watchword for quite a while, and I’ve seen it in most of the places I’ve worked over the years (and there are a lot of them). The other factor, also mentioned by Irwin, is that companies overreacted to the financial crisis, cutting more jobs than they had to, and therefore created panic among their employees that contributed to them working harder.

But I wouldn’t lose sight of the significant demand problem, much of which came from that massive period of layoffs in later 2008-early 2009. People just had less to spend and they tightened their belts. And the result was an economy running below capacity.

Our capacity to produce things is growing because the population is growing. And our capacity to produce things is also growing because productivity is growing. But final demand is not growing at a pace that’s equivalent to the growth in our potential output. And this—inadequate demand—is what’s causing our labor market problems. The solution is more expansionary fiscal policy and more expansionary monetary policy.

Absolutely, but that’s not what we’re getting in any meaningful way. And a jobs number like that expected on Friday will lead a lot of politicians to think that the crisis has lifted. But the ADP report offers a troubling reminder that the economy is still running way too slow relative to the population. And government can play a role in filling that demand shortfall.

David Dayen

David Dayen

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