The Bureau of Labor Statistics recently released third-quarter productivity data that reinforced our view that a recovery from the depths of the economic shutdown is indeed underway.
Still, these are unusual times, and the untethered increases in quarterly data can mask underlying issues that are yet to be resolved. In our estimation, the U.S. still needs a productivity miracle absent changes to immigration policy and a change in productivity-enhancing investment domestically.
(Productivity simply measures how much output is produced for each hour of labor. Long-term productivity gains occur when technology increases the level of output for the same amount of labor, or if investments in the health and intellectual capital of the labor force result in higher levels of production.)
According to the Bureau of Labor Statistics, “Output remains 4.0% below its fourth-quarter 2019 level, recovering somewhat faster than hours worked, which remains 7.5% lower.”
So while the economy has increased the amount of output in the latest quarter, hiring is lagging. The proof is in the more than 750,000 newly out-of-work people who file for unemployment benefits each week. All that does not suggest a productivity gain.
Furthermore, the 4.1% increase in one quarter is clearly not sustainable. Occurrences of 4% productivity growth are either a one-time post-recession phenomenon or are a sign of significant technology change such as we had at the end of the 1990s tech boom. The latter seems unlikely when the five-year average productivity growth was barely above 1% before the pandemic.
So yes, we need another productivity miracle, but it’s not coming from the widespread firings of employees. The next sustainable U.S. productivity gains are likely to occur if we provide better education, a healthy lifestyle and employment opportunities for those who were left behind by each of the last technological advances.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
