It Is Easy To Beat The Productivity Of The Unemployment Sector

Regarding the eurozone, Simon Johnson says: “Fiscal austerity will not help, but fiscal expansion is also unlikely to do much – although presumably it could increase headline numbers for a quarter or two. The private sector needs to grow, preferably through exporting and through competing more effectively against imports.”

That to me reads like a German-style prescription to avoid the adding up constraint and have everyone simultaneously increase net exports (perhaps by finding customers on Mars). Tyler Cowen who praises the column assures me on Twitter that this simply means that Spain, Greece, and the rest ought to raise their productivity. My view is that all countries at all times ought to aspire to raise their productivity, but this is so overwhelmingly true that it can hardly be the answer to specific problems. The Chilean government would do well to take action to raise its workers’ productivity and so would the Spanish government and so would the American government. And yet these three countries are in very different economic circumstances right now, and the fact that Chile has the worst productivity of the three hasn’t stopped it from having the lowest unemployment rate as well.

One particular problem the United States and Spain are both having right now is that the “sit on the couch feeling depressed and useless while scanning the help wanted listings” sector of the economy suffers from extraordinarily low productivity. Zero productivity, in fact. So looked at correctly, moving any substantial fraction of unemployed people into paid work would be a boon for Spain’s productivity. Statistically speaking, however, it would likely show up as a decline in per worker output since the marginal unemployed Spanish person is probably less skilled than the average still-working Spanish person.