The Causes Are Deeper Than the Recession

EMPLOYMENT is lagging far behind general recovery from the recession. While industrial production has recouped more than 50% of its loss, manufacturing employment has recovered only 25%. When will the bulk of the unemployed be rehired? Last week top Administration economists estimated that even when production hits the mid-1957 boom level, unemployment will remain at upwards of 4,000,000, or 6% of the labor force, because of some significant changes in production methods.

Prospects seem dim for any fast improvement in many key industries. Railroad employment plunged from 985,000 last year to 626,000 last May, and there has been virtually no rehiring. In nonelectrical heavy machinery, employment dropped from 1,738,000 last year to 1,486,000 last May, slid still farther in August. Chemical-industry employment dipped from last year's 845,000 to last May's 817,000 to August's 812,800. In steel, the United Steel Workers reported that the number laid off has risen from 212,000 in February to 260,000 in August --though production rose from 54.6% of capacity to 63.6%.

In the hard-hit auto industry, how many auto workers will be rehired depends partly on how well the 1959 models sell. Automakers are moving into volume production much more cautiously than in past years, employing far fewer workers. Ford says that it will roll into full production with 106,000 workers, down from last year's 140,000. While General Motors was mum on its payroll, the United Auto Workers estimated that G.M. will swing into full production of the '59s with 300,000 to 325,000 hourly rated workers v. an average of 392,000 in the last three years. Chrysler will begin with 59,000 v. last year's 100,000.

Some economists argue that these figures give no cause for alarm because in past recessions, re-employment always lagged behind general recovery. On the first signs of pickup, employers cautiously first lengthened the factory work week--as they are doing now. Furthermore, recessions have always cut the need for workers. Productivity has risen as management searched out new ways to cut costs and workers hustled harder to hold their jobs. Therefore, workers have been hired only after recovery was well under way.

The current recession has knocked some holes in the theories. Recovery is well under way. but employment lags. The main reason is the surprising jump in productivity, far greater than in any previous recession-recovery period. Manufacturing employees' productivity rose 4% from January through July; for the whole year it will probably rise 6% to 7% v. an average annual increase of 3.2%--including virtually no increases at all in the last two years. A big reason for the spurt is that most of the record $100 billion that U.S. industry invested in new plant and equipment in the past three years is coming into production. Steadily rising labor costs have forced industry into a major drive to produce more with fewer workers, placing new emphasis on automation and efficiency. Last week's wage boosts in Detroit (see State of Business) will accelerate the automakers' drive to cut back. Said a vice president of a major steel company: "Labor fails to understand the fact that the more expensive labor gets, the more incentive there is to eliminate it. It costs us $25 a day for every steelworker that walks through the gate. Naturally, there is a great incentive to eliminate that cost.''

To spread the work around, unions are clamoring anew for a shorter work week. Steelworkers' Boss David McDonald announced last week that he will press for a shorter week in 1959. Recently, the United Electrical, Radio and Machine Workers offered to pass up an automatic 7% wage boost over the next two years if General Electric Co. would put in a 37 1/2-hour week at 40 hours' pay. G.E. refused, said the offer actually would boost its wage bill by 14%. The union drive for a shorter week will undoubtedly be spurred by the recession-hastened cuts, which may prove permanent, in the payrolls of such basic industries as railroads, steel and autos.

On the other hand, jobs are steadily opening up in new industries such as electronics. In addition, the rise in productivity will accelerate the shift of workers out of industry and into retail, wholesale and service jobs, the job categories that held up best during the recession. Administration economists fear that these shifts and disruptions in the labor force will take some time to balance out because workers are understandably reluctant to go into new towns or new industries to find jobs. Historically, sharp increases in productivity have always created tough periods of adjustment. Yet more production for the same amount of effort has also always led to stable or lower prices and better products, which in turn have increased demand and eventually spurred both production and employment.

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