Wall Street Journal (01/17/12) Aeppel, Timothy

Businesses have greatly increased spending on machines and software during this recovery, while at the same time moving slowly to add people to run them. A combination of temporary tax breaks that allowed companies in 2011 to write off 100% of investments in the first year and historically low short- and long-term interest rates helped push the longstanding trend of substituting capital for labor into overdrive.

Employers have added workers at a monthly rate of 142,000 for the past six months, half the pace needed to significantly reduce unemployment, which is now at 8.5%. Many economists say the ongoing surge in productivity brought about by investments in technology will in the long run create more jobs, but in the short-term, the burst of efficiency allows companies to delay hiring.

The trend toward using labor-saving machines and software is not limited to factories. W. Brian Arthur, an economist at Xerox Corp.’s Palo Alto Research Center, says businesses are increasingly using computers and software in the place of people in the service sector. “It’s not just machines replacing people, though there’s some of that,” says Arthur. “It’s much more the digitization of the whole economy.”