Hopes for a post-pandemic productivity surge will be disappointed

IN 2020-21 THE invention, approval and distribution of vaccines against covid-19 prompted a wave of optimism about the future. If humans could, within months, develop the tools to end a global pandemic, then what else might they be able to do? Many economists held out hope that the world was on the cusp of “the roaring twenties” and that before long there would be vaccines for cancer, driverless cars and virtual-reality goggles for all. Others added that the shift towards working from home would raise productivity by cutting out commutes.

The reality since then has fallen far short of these lofty expectations. Productivity, which measures how much people produce at work, did accelerate in 2020 and 2021—but that was largely because lower-skilled folk dropped out of jobs, mechanically raising the average. Since then productivity growth has come back down to earth. The latest data suggest that productivity may now be falling (see chart). Unfortunately, there is little sign that 2023 will be any different. That matters greatly, because higher productivity is the root cause of higher GDP and take-home pay.

Productivity growth has disappointed for a few reasons. The shift towards home-working may have proved less helpful than it seemed at first. True, at home people are more able to focus on “deep work” than they might in a noisy office. But the productivity losses from missing out on water-cooler chat may, slowly, add up. Communication within organisations, especially between different departments, is also likely to have suffered.

In addition, many companies still have to deal with the fallout from the pandemic. Millions of people still get covid each week, forcing them to stay at home. And some workers, aware of the acute labour shortages that afflict many industries, may not see the point in putting in much effort, knowing they are unlikely to get fired. There has been much speculation about whether “quiet quitting”, a supposed trend in which people do the absolute minimum, is the latest headache for bosses.

Nor is there any sign of an uptick in innovation. Global patent filings, one measure of inventiveness, barely budged in 2021. Investment surged, but not necessarily in the things that improve people’s lives. Some companies built extra manufacturing and storage capacity in order to prevent a repeat of the empty-shelves fiasco of 2021—measures that actually reduce productivity by raising costs. Others have built up stocks of raw materials, semi-finished and finished goods in order to protect themselves from supply-chain snarls. This counts towards investment in the statistics, but does nothing for productivity.

Some economists hold out hope that the long-awaited surge in productivity will still materialise. But that may be over-optimistic. The continued prevalence of covid means that worker absences are likely to be permanently higher than they were before 2020. The latest data suggest that global capital spending is coming back down to earth. Higher interest rates will make companies think twice about big investment plans.

More important, the structural conditions that led to weak productivity growth before the pandemic have not changed. Populations continue to age, and older people, generally speaking, have fewer ideas. Many productivity-enhancing activities, from building commercial and residential property to approving inventions or boosting immigration, are hampered by bureaucracy. When it comes to economic growth, 2023 will be more boring than roaring.■