By Ron Collett

I like to catch up on reading during the holidays, and I came across a really interesting exchange on the Becker-Posner blog.

Gary Becker, the University of Chicago economics professor, examined some fresh Bureau of Labor Statistics numbers on productivity (see chart below), which showed productivity is soaring as the nation pulls out of recession.

He wrote:

The fast growth in American productivity toward the end of this serious recession is quite unusual because measured productivity often falls during recessions as companies are stuck with excess capacity of their capital.

His take on the economy’s near-term future, based on this data, was positive. Technology, as it does historically, will be leveraged to advance productivity. His blog partner, Richard Posner, a federal judge and University of Chicago lecturer, was not quite so optimistic:

Posner attributed the productivity gains to “old-fashioned cost cutting spurred not by technological advances but by economic distress.”

The only explanations I have seen offered for the productivity surge is cutting wages and working the workers harder. I have found no suggestion of any technological change that might be responsible for such a large, sudden surge in productivity…Productivity gains that are based merely on adaptations to temporarily depressed economic conditions will be lost when conditions improve. As labor markets tighten, a firm will perforce hire workers who are less productive than the workers it had retained in a slimmed-down workforce during the depression; and so productivity will decline.

I don’t think it’s a zero-sum game. Some rehiring is inevitable but so too is exploiting the advance of technology; smart managers look to technology to advance productivity gains.

We’ve seen our own semiconductor industry begin to roar back to life in recent months, and I can tell you that R&D departments are looking to optimize development efficiency as a new way to differentiate themselves and keep the momentum going. That’s why I think 2010 is the Year of Productivity.

Non-farm labor productivity jumped 6.9% in the second quarter of 2009 and another 8.1 % in the third quarter, surprising some economists.

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