U.S. Economy Growing Faster Than Rivals, But Creating Far Fewer Jobs

WASHINGTON — The United States is out of step with the rest of the world's richest industrialized nations: Its economy is growing faster than theirs but creating far fewer jobs.

The reason is U.S. workers have become so productive that it's harder for anyone without a job to get one.

Companies are producing and profiting more than when the recession began, despite fewer workers. They're hiring again, but not fast enough to replace most of the 7.5 million jobs lost since the recession began.

Measured in growth, the American economy has outperformed those of Britain, France, Germany, Italy and Japan – every Group of 7 developed nation except Canada, according to The Associated Press' new Global Economy Tracker, a quarterly analysis of 22 countries representing more than 80 percent of global output.

Yet the U.S. job market remains the group's weakest. U.S. employment bottomed and started growing again a year ago, but there are still 5.4 percent fewer American jobs than in December 2007. That's a much sharper drop than in any other G-7 country. The U.S. had the G-7's highest unemployment rate as of December.

Canada and Germany have actually added jobs since the recession ended in June 2009.

U.S. companies aren't acting the way economists had expected them to.

In the past, when the U.S. economy fell into recession, companies typically cut jobs but often kept more than they needed. Some might have felt protective of their staffs. Or they didn't want to risk losing skilled employees they'd need once business rebounded.

Among manufacturers, for example, some tended to hoard workers during downturns by giving them make-work assignments – sweeping factory floors, counting inventory, painting warehouses.

The result is that productivity – output per workers – has typically decelerated or even dropped as the economy has weakened.

Japan and Europe have been following that script. At the depth of the recession in 2009, productivity shrank 3.7 percent in Japan and 2.2 percent in Europe.

The United States has proved the exception. U.S. productivity growth doubled from 2008 to 2009, then doubled again in 2010, according to the Organization for Economic Cooperation and Development.

Panicked by the 2008 financial crisis and deepening recession, U.S. employers cut jobs pitilessly. They slashed an average of 780,000 jobs a month in the January-March quarter of 2009.

"My sense is there was much more weeding out of the weakest workers – the ones they didn't want," says Harvard economist Kenneth Rogoff.

Yet after shrinking payrolls, many companies found they could produce just as much with fewer workers. And with that higher productivity came higher profits. By July-September quarter of 2010, U.S. corporate earnings were 12 percent more than when the recession began.

By contrast, corporate profits fell 6 percent in Japan and 16 percent in Canada from the October-December quarter of 2007, according to Haver Analytics.

In Reading, Pennsylvania, Remcon Plastics moved fast once sales evaporated in the fall of 2008.

"I have never seen my business go so quiet," says Peter Connors, founder of the company, which makes pharmaceutical equipment. "I recognized that business wasn't going to be strong for some time."

So he laid off 25 temporary workers. And he put his 50 full-time employees on a three-day workweek.

Remcon rethought how it did business – restructuring the workplace, for example, so employees didn't have to walk as far to do their tasks. A plastic part that once had to be made by six workers now needs three. It can be produced faster.

"So even as demand came back, we could wait to add people," Connors says.

Japanese, European and Canadian companies are less inclined to purge employees. Their customs, labor regulations and unions discourage aggressive layoffs.

U.S. management practices "make it easier for employers to avoid adding permanent jobs," says economist Erica Groshen, a vice president at the Federal Reserve Bank of New York. "They have temporary help they can hire easily. They're less constrained by traditional human resources practices or by union contracts."

Fewer than 12 percent of American workers belong to unions, which provide some protection against job cuts. That's the fourth-lowest union participation rate among 31 countries the OECD tracks.

"When there's pressure to cut costs in the United States, it's borne by the workers," says Howard Rosen, visiting fellow at the Peterson Institute for International Economics. "In Europe, it's borne differently."

In Germany, unemployment is lower now than before the recession. To limit layoffs, German companies spread the pain by reducing workers' hours.

"Japanese companies took it upon themselves to paint the factory – do more stuff that kept people on the payroll," says Gary Burtless, senior fellow in economic studies at the Brookings Institution.

That helps explain why Japan's unemployment rate was the lowest among G-7 countries in December at just 4.9 percent, though it may rise after the earthquake and nuclear disaster that struck Japan's northeastern coastline.

The United States is "on the other end of the spectrum," says Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers University.

"Everything is tilted in favor of the employers... The employee has no leverage. If your boss says, `I want you to come in the next two Saturdays,' what are you going to say – no?"