Thursday, November 05, 2009
Note to Congress: If you make labor more costly relative to capital, you can expect capital to substitute for labor more.
UPDATE: Ed Morrissey asks via email whether this has any portent for unemployment? I think it does. The investment in equipment and software may be either of a deepening or broadening variety. If you are dumping many workers you can also cut your capital budget. But if that category turns around while you are still cutting workers -- the ADP projection for private sector payrolls is a loss of 203,000 jobs, above the consensus forecast of -175,000 overall jobs -- that would suggest capital deepening. I think this is what's driving increased productivity. This also means each new worker now comes with a higher "capital budget requirement", and between that and the payroll taxes contemplated under Pelosicare you probably have a greater drag on employment than otherwise contemplated.
While these data are for the third and tomorrow's report is for the first month of Q4, I am inclined to think we will see both a number closer to 200k for jobs lost. That might make the unemployment rate 10%.