Productivity up, employment down: Is squeezing workers good for America?

Productivity, the amount that each worker produces per hour, rose 6.6 percent in the second quarter. quarter. That huge increase (analysts expected a 6.4 percent rise) came as the amount they produced fell 1.5 percent. But the reason for this increase in productivity is fairly straightforward: nearly seven million people are unemployed and hundreds of thousands lose their jobs each week. While higher productivity sounds great, you have to wonder, is this good for America?

It depends on what the meaning of America is. If by America, you mean American workers, the answer is ambiguous. That's because the high productivity means that the workers who remain employed are probably the best ones and they are likely to benefit as demand revives. Moreover, any worker whose 401(k) is invested in stocks will benefit as increased corporate productivity yields higher profits and stock prices.

But there's bad news too. First, unit labor costs -- which is how much those workers get paid -- are down 5.9 percent, the most in nine years. Second, all those unemployed workers who are helping boost those productivity numbers are not going to go on a spending spree. In fact, with 70 percent of GDP growth coming from consumer spending, we are still in the midst of a deflationary spiral.

That spiral starts with workers who get fired so that companies can meet their profit projections. Those unemployed workers spend less money which means that demand for consumer products and services declines. The factories that make those products adjust their production down to match the lower demand. And that means firing more workers.

As long as the U.S. is so dependent on consumer spending for economic growth, it looks to me like squeezing workers is bad for America.

Peter Cohan is amanagement consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter.

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