NCPA - National Center for Policy Analysis

Staff Cuts Have Boosted Productivity

February 7, 2002

The productivity of American industry usually falls during economic downturns, but not in this recession. Businesses were quick to cut jobs and hours when economic storm clouds appeared last year. The result was that productivity growth in last year's fourth quarter was the best in 18 months.

That, in turn, kept output levels high.

  • Productivity, excluding farming, climbed at a 3.5 percent annual rate in the final three months of 2001.
  • For the third quarter, the rise had only been 1.1 percent.
  • Output only fell by 0.4 percent in the fourth quarter -- after sinking 2.3 percent in the third quarter.
  • Hours worked plummeted 3.7 percent last quarter -- the largest decline since the first quarter of 1991, when the economy was in recession.

Experts predict that with productivity strong, firms will be able to ramp up production with little added expense when demand recovers. An added benefit is that productivity also keeps inflation low, giving workers more buying power.

Source: Barbara Hagenbaugh, "Productivity Gains as Firms Cut Staffs," USA Today, February 7, 2002.

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