A New Interpretation of Productivity Growth Dynamics in the Pre-Pandemic and Pandemic Era U.S. Economy, 1950-2022 / Robert J. Gordon, Hassan Sayed.

Format:

Book

Author/Creator:

Gordon, Robert J.

Contributor:

National Bureau of Economic Research.

Sayed, Hassan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30267.

NBER working paper series no. w30267

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

The dismal decade of 2010-19 recorded the slowest productivity growth of any decade in U.S. history, only 1.1 percent per year in the business sector. Yet the pandemic appears to have created a resurgence in productivity growth with a 4.1 percent rate achieved in the four quarters of 2020. This paper provides a unified framework that explains productivity growth in both the pre-pandemic and pandemic-era U.S. economy. The key insight is that in their panicked reaction to the collapse of output in the 2008-09 recession, business firms overreacted with "excess layoffs," adjusting hours to the output decline with a far higher elasticity than normal. Our regression analysis, which allows post-recession rehiring that gradually unwinds the excess layoffs, explains why productivity growth was countercyclical in 2009 and why it was so slow in 2010-16 as rehiring boosted hours growth. Post-sample simulations explain why productivity growth was so high in 2020 and why it fell to only 0.6 percent in the five quarters of 2021-22. The paper includes implications for the future long-term evolution of productivity growth in the business sector and total economy. A new data file on quarterly productivity levels and changes for 17 industries provides new perspectives for 2006-22 and particularly for the nine pandemic quarters of 2020-22. Positive pandemic-era productivity growth can be entirely explained by a surge in the performance of work-from-home service industries, while goods industries soared and then slumped, while contact services recorded strongly negative productivity growth throughout 2020-22.

Notes:

Print version record

July 2022.