It’s Not Time to Panic About Productivity Drop — Yet
Recent declines in output per hour worked are probably just aftereffects of a strange recession and recovery, but if they don’t start turning around soon there will be trouble.
Employers, especially those in sectors like restaurants and hotels, shedded workers during the pandemic then struggled to fill jobs as demand rebounded.
Photographer: Anna Moneymaker/Getty Images
Productivity, in economist Paul Krugman’s famous formulation, “isn’t everything, but in the long run, it’s almost everything.” Increasing output per hour worked is the key to increasing living standards over time. Productivity growth’s slowdown in the 1970s and 1980s, its resurgence in the 1990s and the end to that resurgence in the mid-2000s have been defining events in recent US economic history.
Recent productivity news hasn’t been great. Output per hour worked at US nonfarm businesses — also known as labor productivity — was 0.8% lower in the first quarter than a year earlier. This was the fifth such consecutive drop, the first time that’s happened in measurements that go back to 1947. Annual statistics for 2022 showed labor productivity declines in 37 states, and a 1.2% national drop in total factor productivity, which attempts to measure output from a given amount of labor, capital and other inputs and is seen as a rough indication of technological progress. That was the biggest such decline ever, although in this case the numbers go back only to 1987.