How can rising productivity mean more staff?
This BBC article asserts that... Productivity, as measured by output per hour of work, rose at an annual rate of 9.5% between July and September. The data suggests that firms, which have cut jobs in the downturn, are now increasing their output, which may in turn lead to them needing more staff. This is truly a paradox. Greater productivity normally means firms need fewer staff - until, eventually, rising income increases aggregate demand, and then the laid-off people are employed in other sectors. The article seems to be another example of the equilibrium fallacy *, where a reversion to equilibrium is mistaken for a first-order effect. That is, firms cut staff because they had insufficient demand for their products - naturally, getting rid of the least productive staff. The remaining workers are more productive on average, and the reduction in output is less than the reduction in staff. This doesn't imply at all that either demand or output is increasing . If productivity had in...