Research shows the pandemic’s impact on US productivity could be a wash

JACKSON, Wyo., Aug 26 (Reuters) – The coronavirus pandemic has sparked a riot among U.S. firms and households to adjust their work lives and business models, with work-from-home arrangements and teleconferencing tools limiting the options of some Employees improved and new technology that helps even the smallest cafe do more with less.

But the crisis also brought a wave of inefficiencies in the form of scrambled supply chains, time and money spent on cleaning and health management, and hiring difficulties that still keep some companies under capacity.

The net result of all the turmoil, it turns out, could be a washing of the underlying potential of the US economy, with little change in productivity or trend growth and a demographic strain still looming as the population ages, new research presents at the Kansas City Federal Reserve’s annual Jackson Hole Research Symposium in Wyoming.

“We find little evidence that the pandemic has so far resulted in any significant shifts, up or down, in the economy’s sluggish long-term pre-pandemic growth rate,” which remains anchored between 1.50% and 1.75% it was ahead of the biggest health crisis in a century, San Francisco Fed economists John Fernald and Huiyu Li wrote in the research paper.

While innovation fueled a surge in productivity in the early months of the pandemic that some believed could boost the economy’s potential, productivity numbers plummeted just as quickly in a cyclical pattern the authors say is common during and after recessions and in In this case, things seem to have largely disappeared from where they were.

If a number of companies did well — and the research paper found that those where employees were able to telecommute experienced “strong pandemic productivity” — troubles elsewhere went the other way.

“The performance of the commodity-producing industries is poor; the performance of contact-intensive industries is atrocious,” the research paper concluded. Across the economy, “the pandemic productivity data on the web is nothing to get too excited about… Despite numerous comments to the contrary, headline productivity has behaved in a surprisingly predictable cyclical manner.”

If the risk is one way or the other, they wrote, it’s because the COVID-19 crisis has “reduced the level of potential output” at the edges in the United States by reducing the number of people in the labor force .

HARD TO PREDICT

The end result is subject to change. Productivity is notoriously unpredictable. Technology can take time to spread – and then surprises when its impact on growth becomes apparent.

“Artificial intelligence and robots could eventually bring a massive productivity payoff — but we don’t know when that will happen,” the San Francisco Fed economists wrote.

Likewise, workers who stayed away from the economy for health or other reasons may eventually return.

But the results are remarkable. Fernald was one of the Fed economists most focused on productivity, and the future landscape he outlines would be difficult for Fed policymakers to navigate.

Increasing productivity is the economist’s equivalent of a silver bullet. If each worker produces more per hour, the economy can still expand even if the workforce itself does not grow. Wages can also increase without fueling inflation, since for every dollar paid to employees, an employer gets more products to sell.

The reverse is also true: when productivity is poor, either growth remains slow or inflationary pressures increase. The alternative is to get more people into the labor market, and the choices there — more immigration or a change in birth rates — go beyond Fed policy.

Reporting by Howard Schneider; Edited by Paul Simao

Our standards: The Thomson Reuters Trust Principles.