The Bureau of Labor Statistics recently reported that “nonfarm business sector labor productivity increased at a 6.6 percent annualized rate during the second quarter of 2009.”¹  In fact, it was the largest increase in productivity since the end of 2003.At that rate, output per hour would double in just 10 years.  

So, what’s behind this strong increase in productivity?Because of the recession, there was a decline of 1.5 percent in output.However, this was coupled with a 7.6 percent drop in the number of hours worked.  Therefore, labor costs for nonfarm businesses fell at a 5.9 percent rate.This decline in labor costs was due entirely to the increase in productivity.

Remarkably, this is the first time in history we’ve experienced productivity growth during every quarter of a recession.Not only that, but even as the economy shrank by 3.8 percent in the fourth quarter of 2007, productivity rose 3.2 percent.Dale Jorgenson, an expert on productivity at Harvard, calls this “a paradox.”  More to the point, The Wall Street Journal²refers to this state of affairs as “practically a miracle.” 

So, what’s new?Efficiency has been driven by many factors over the history of the nation.For example, the introduction of mass production increased efficiency.But it also produced millions of jobs.

In the same way, the spread of computers initially increased both productivity and employment, even while it expanded the overall size of the economy.But today, with IT having spread to every industry, productivity is increasing while employment is experiencing slower growth — or even shrinking.That’s because technology is enabling businesses to run leaner than ever.So, they don’t need to rush to hire back the people they’ve let go.

Furthermore, The Economist³ reports that recent job cuts may be more permanent than in previous recessions, because they have been approached differently by companies.There are two reasons for this:

Firms have cut personnel at the management level. 

Instead of cutting across the board, they have...