Broader unemployment rate hits 17.5% as companies get smarter about staff

broader-unemployment-rate-hits-17-5-as-companies-get-smarter-abThe weekly blizzard of economic statistics makes it tough to figure out what is really going on. But with a near-record number of people unemployed or underemployed, productivity at very high levels, and pay rising for the people who still have jobs, one conclusion seems to jump out: Companies are getting smarter about who they keep, how they manage the keepers, and who they fire.

Let's look at some of the numbers. The New York Times reports that what I would call wasted workers -- the combination of unemployed who are still looking for work, discouraged workers who have given up looking, and part-time workers seeking full-time jobs -- has hit a record 17.5%. This beats the previous record of 17.1% set in the midst of the Paul Volcker-led recession of 1982. (Then-Fed Chair Volcker's recession resulted from his decision to raise interest rates up to 20% to break the back of inflation.)

While this rate of wasted workers is bad, what I found interesting was that the other 82.5% of the workforce was producing more -- productivity grew 9.5% in the third quarter -- and getting more pay. That's because about 80% of workers -- so-called rank-and-file workers -- enjoyed a 1.5% to 2.5% increase in their average hourly wages, despite a drop in the number of hours worked, which caused average weekly pay to rise a smaller 1%, according to The New York Times.

In previous recessions, workers were far worse off. At the same point in the mid-1970s downturn, inflation-adjusted weekly pay had dropped 7% ; in the early 1980s recession, it had fallen 4%.

These statistics suggest that even in the midst of a really bad recession, companies are getting smarter about people. They appear very reluctant to hire new ones -- as I posted, competition for new positions is at a record 6-to-1 ratio. But employers are squeezing the most productivity they can out of the people they keep and paying them more -- possibly because they fear the loss of their talents.

This means it could take as long as three years before many of those wasted workers can find jobs. As I posted, in the 2001 recession, job creation lagged the return to economic growth by 22 months. But since companies are being smarter about people this time, if demand grows, companies will probably add hours to the schedules of their best workers before hiring new ones. I'd guess this would widen the gap between when output growth starts and job expansion resumes.

This is good news for those with jobs and bad news for those without them. But these two groups depend on each other to some extent. Without a boost in incomes or borrowing capacity for the wasted 17.5% of the workforce, it will be harder for consumer spending -- which accounts for 70% of GDP growth -- to rise enough to boost demand for the products that the other 82.5% are producing.

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

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