Productivity surged in the spring by the largest amount in almost six years while labor costs plunged at the fastest pace in nine years. The Labor Department says productivity, the amount of output per hour of work, rose at an annual rate of 6.4% in the April-June quarter, while unit labor costs dropped 5.8%. Both results were greater than economists expected.
Productivity is a key ingredient for rising living standards because it means that companies can pay their workers more with the wage increases financed by rising output.
However, in the current recession, companies have been using the productivity gains to bolster their bottom lines in the face of declining sales. Many companies have been reporting second-quarter earnings results that have beaten expectations despite falling sales, due largely to their aggressive cost cutting.
Many economists believe the current recession is on the verge of ending. If the economy starts to grow in the second half of this year, companies are expected to switch from layoffs and trimming workers’ hours to boosting employment as demand for their products increases.
