Several factors are at work. Expanded unemployment-insurance benefits encourage some workers to keep looking for a job rather than drop out of the workforce altogether, adding perhaps half a percentage point to the unemployment rate, according to the Fed. The evisceration of their wealth may have led people to look for work rather than retire or stay at home with the children.
And firms have been unusually quick to slash payrolls. Some may be husbanding cash more carefully because of the credit crunch. Others may simply be more pessimistic about an eventual recovery. Whatever the reason, one result is that productivity is rising, cushioning profit margins. Robert Hall of Stanford University, who heads the academic committee that dates recessions, says Okun devised his law in an era when productivity usually fell during recessions: “When productivity rises, the law fails. Though I was a great fan of Okun’s, I’m afraid his law is obsolete.”