[robrenaud]

If you can make your employees more productive, I would think you would want more of them, to capture more of the market. That is, if employee output increases, but the cost per employee are constant, you are better off hiring more employees until the marginal output of the next employee reaches the cost of that employee.

But what do I know, I am just an engineer ;).

[btilly]

You're assuming a far more direct relation between consumption and production than actually exists.

If I can sell 10,000 widgets for $100 each that doesn't mean that I can sell 1,000,000 widgets at the same price. And if I try to produce that many widgets in the hope of selling them, I'm liable to drive the price of widgets down so far that I'll lose money on all of them!

In other words while the auto industry could produce more cars than anyone wants to buy, it would be a really, really bad idea for them to do so.

In production there is a point of diminishing returns. And after you're at that point, increased productivity frequently results in cutting back people to return production to an optimal level.

[robrenaud]

I was talking about behavior of employers on the margin, not about increasing employment by an order of magnitude.

Certainly I agree that my argument is limited by changes at scale and also only applies to individual companies within an industry rather than entire industries as a whole.

On the other hand, if Chevy gained a competitive advantage and could produce cars say, 10% cheaper than they used to be able to, it would usually make sense for them to produce more cars, potentially selling them for cheaper. The car industry as a whole still couldn't sell many more cars, but the Chevy would still be better off, taking some market share their competitors.

On the other hand, I think the implicit assumption in the article is that the recession shocked the economy and there was a significant drop in demand. Even if Chevy realized some efficiency gains during the recession, they are still better off cutting production and letting those efficiency gains limit workforce size because the demand curve changed.

[petercooper]

Employee productivity isn't the most important variable in such a case. More important is the productivity and capacity of the bottlenecks and constraints within your production system (and that's not always the workers themselves).