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Layoffs, Productivity, and Jobless Recoveries

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"Layoffs, Productivity, and Jobless Recoveries"

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(cc photo by DeclanTM)

(cc photo by DeclanTM)

It’s famously difficult to fire public school teachers once they’ve gotten it through their first couple of years on the job. This leads to a lot of problems for kids, and sometimes to wacky scenarios like New York’s “rubber rooms.” That said, as Kevin Drum says even though the private sector is formally very different, in practice it often seems quite similar:

On the other hand, I’d also say that, at least in the places I’m familiar with, virtually everyone who got fired was let go within the first year or two they were with the company. Very few who had been around for more than three years got fired. On the third hand, occasional layoffs often provided excuses to get rid of poor performers, so perhaps that shrank the pool of people who would otherwise have eventually been axed.

I think the evidence suggests that layoffs are playing a pretty big role here. A big part of the story of recent business cycles is the rise of the “jobless recovery” in which the employment-population ratio doesn’t start rising until long after GDP has pulled out from its trough. Another way of putting this is that recessions are now associated with spikes in the average productivity of the workforce. It would be extremely strange if that was because economic distress was leading people to invent better stuff. It’s much more plausible, however, that when economic distress forces managers to lay people off they take the opportunity to clear out some of the dead wood.

Related to that, it’s clear that the nature of contemporary office works affords a large slice of the workforce with ample opportunities to waste time while at work. That, in essence, is the economic foundation of the blogosphere. But layoffs could also very plausibly reduce wastage of time since people don’t want to look like dead wood.

The application of this to education policy seems limited, since there are perfectly sound macroeconomic reasons to discourage states from engaging in pro-cyclical teacher layoffs during recessions. That said, big recessions normally do lead to some teacher layoffs, and as Robin Chait argues here the layoff procedure is normally done with no attention whatsoever to teacher quality, which is not a very good idea. For the economy as a whole, I think it mostly means that we’ll need loose monetary policy for a good long while now.

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