Will pandemic disruptions jump-start productivity growth?

 

Will pandemic disruptions jump-start productivity growth?   An analysis by Klaas de Vries, Economist, and Ataman Ozyildirim, Senior Director, Economics at The Conference Board

 

 

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A recent pickup in total factor productivity growth could potentially reverse a decade-long trend. Total factor productivity (TFP), a measure of economic efficiency and innovation, is projected to grow by 0.3 percent globally and 2.4 percent in the United States in 2021, following contractions of 1.9 and 0.8 percent in 2020, respectively. While the post-pandemic recovery in economic growth rates has been robust, to maintain or surpass the growth performance of the past decade, productivity growth must be higher than it has been so far. Global demographic trends underlying a shrinking labor supply are returning and are compounded by disruptions resulting from the legacy of the pandemic. These trends limit the potential growth performance of economies around the world, including the United States. What would alter the productivity trends?   On the one hand, increased adoption of digital technologies could lead to a productivity revival and counteract demographic trends leading to slow economic growth. Slow labor supply growth and labor shortages could spur companies to focus more on innovation through accelerating automation and digital transformation. On the other hand, the global pandemic has disrupted human capital accumulation and exacerbated inequalities in labor markets across the world, leading to increased risks of ‘scarring’ effects on workers which dampens total factor productivity gains. Furthermore, a disorderly exit from government stimulus measures may lead to a surge in bankruptcies across the economy, hitting not just the least productive firms, but also, more productive ones. The rapid technological developments since the global financial crisis of 2008-2009 did not fully translate into commensurate economic output. An already weak productivity growth environment was followed by a sudden loss in output and productivity amid the pandemic induced recession. While it’s still too early to tell, early data suggest pandemic related disruptions could set the stage for a productivity revival for the US economy and indeed for the global economy. To learn more about the Total Economy Database™ please refer to our website which includes data on output and input measures for 130 economies globally covering the period from 1950 onwards including a forecast for 2021.