Productivity increases more than expected in first quarter

U.S. workers were more productive in the first quarter than previously estimated, the government said Thursday, as rapid layoffs meant companies were forced to make do with fewer employees. The Labor Department said productivity, the amount of output per hour worked, rose at a seasonally adjusted annual rate of 1.6 percent in the January-March period, double the government's estimate last month. That was also above analysts' expectations of 1.2 percent growth. Higher productivity can raise living standards because workers that produce more can earn higher wages without forcing companies to raise prices. But the first quarter's increase, which came in the midst of the longest recession since World War II, is a mixed benefit because it resulted from layoffs and sharp cuts in hours worked, which fell at a faster pace than output. The department also said labor costs rose 3 percent, down from its previous measure of 3.3 percent and nearly matching forecasts. A rapid increase in labor costs could fuel inflation, as employers pass on the higher costs to consumers in the form of higher prices. But most economists aren't worried about inflation, as the recession is keeping a lid on wage demands. With the unemployment rate rising, most workers are more concerned about keeping their jobs than demanding higher pay. The first quarter figure is below the revised increase in labor costs of 5.1 percent in the fourth quarter. The government revised its estimate last week of the overall economy's performance in the first quarter. The Commerce Department said gross domestic product, the broadest measure of the nation's output, fell by 5.7 percent, an improvement from its previous report of a 6.1 percent drop. That rise led the Labor Department to increase its productivity estimate. Still, greater productivity could have a downside by contributing to a jobless recovery, according to economists at Barclays Capital. Employers who learned to do more with less during the recession may not feel the need to take on more workers when the economy begins growing again.