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As we have seen in the aftermath of the global financial crisis of 2008, productivity across the developed world has fallen. One of the leading explanations for this is that this is because managers are reluctant to dispose of their workforce (this is expensive due to redundancy costs, and the eventual recruitment drive and training costs when demand picks up and a larger workforce is required) who may be highly trained. Therefore each worker is producing less, as a result of weak demand, and hence productivity falls. The upshot of this is that unemployment remains lower than it perhaps ought to (based on levels of aggregate demand).

Productivity = Output / Workforce per Time Period

Output falls, and workers stay the same therefore productivity decreases.

Page last updated on 02/07/13