Here's the view from Mary Daley and Fred Furlong at the San Francisco Fed, appearing in the latest edition of the bank's FRBSF Economic Letter. First, the competing hypotheses.
Although considerable research has uncovered the primary drivers of the late 1990s surge in productivity growth, the factors pushing productivity growth above its presumed trend in more recent years are less well understood. One possibility is that the very rapid pace of productivity growth since the recent recession reflected the lagged effects of past capital investment and increased efficiency in workplace organization. In that case, gains in the level of productivity should stick, as its growth proceeds closer to trend. Another possibility, however, is that a significant portion of the extraordinary gains reflected stopgap measures that gave only a temporary boost to productivity. For example, since the recession, it has been common to hear stories about "business caution" brought on by an environment still jolted by the effects of September 11, 2001, the wars in Afghanistan and Iraq, the IT bust, and corporate governance scandals. This caution may have led businesses to meet increases in demand by pushing their existing workers harder, perhaps to unsustainable levels, rather than by hiring more workers. Therefore, as businesses become more confident and expand hiring, the unwinding of the earlier, temporary gains in productivity would push productivity growth below its underlying trend.
The experiment:
This Economic Letter uses state-level data to contribute to the analyses of the drivers of gains in U.S. labor productivity since 2000--stopgap measures among cautious employers or more lasting changes. While the nation has had a so-called jobless recovery, many states posted net job gains early in the recovery and regained previous peaks in employment levels well ahead of the nation...
As of September 2004, nonfarm payroll jobs were at or above the pre-U.S. recession levels for 21 states, which account for a little over one-fourth of total nonfarm payroll employment in the U.S. If the acceleration in productivity growth had been due largely to cautious employers pushing their existing workforces harder, we would expect to see some negative correlation between employment growth and productivity growth across states--in other words, either faster employment growth and slower productivity growth or vice versa. The idea is that, if a firm had confidence to expand employment, it would be less likely to engage in stopgap measures to raise productivity.
And the results:
For the period 2001 through 2004, we find no statistically significant relationship between productivity growth and employment growth across the U.S. states.
That result can be seen in this picture.
The authors conclude that
The absence of a negative relationship between productivity growth and employment growth is consistent with a wide range of firms working to make long-lasting improvements in efficiency...
and
... with the view that the gains in the level of productivity we have observed are lasting and unlikely to be unwound substantially once employment growth picks up.
"Consistent with" isn't exactly proof, of course, and a negative relationship between productivity growth and employment growth might emerge if other differences across states are controlled for. But its a reasonable volley into the court of those who are playing the labor-hoarding hypothesis.