Has the pandemic boosted labor productivity? : Output fell, hours worked fell more, so labor productivity is up

In a previous post, the FRED Blog disentangled the general concept of growth in output from growth in hours worked and growth in labor productivity. The key takeaway: Labor productivity growth allows workers to produce more goods and services during each hour of work.

The FRED graph above shows the amount of U.S. real output (in green), the overall number of hours worked (in red), and labor productivity (in blue). These quarterly indexes produced by the U.S. Bureau of Labor Statistics to measure each concept have been re-indexed to the first quarter of 2020, the start of the COVID-19-induced recession. The dashed line represents the value (100) for each of these concepts at that point in time.

Again, labor productivity is output per hour worked. For most of 2020,  overall output declined but overall hours worked declined even more. Because the reduction in hours worked was larger than the reduction in overall economic activity, labor productivity increased.

Historically, this is unusual. In all but 3 of the previous 11 recessions (1948-49, 1969-70, and 2001), the number of worked hours decreased less than real output did. As a result, labor productivity decreased for those 8 recessions.

As of the first quarter of 2021, inflation-adjusted output is above pre-recession levels and the number of hours worked remains depressed. When recessions end, overall economic activity tends to grow faster than employment and so labor productivity tends to get a boost. Will that end up being the case this time around? Keep up with the FRED Blog and we’ll figure it out with FRED® data.

How the graph was created: Search FRED for “Nonfarm Business Sector: Real Output Per Hour of All Persons.” From the “Edit Graph” panel, search for and add two more series: “Nonfarm Business Sector: Hours of All Persons” and “Nonfarm Business Sector: Real Output.” Next, change the units to “Index (Scale value to 100 for chosen date)” and from the U.S. recession menu select “2020-02-01,” the start date of the COVID-19-induced recession. Click on “Copy to all” and change the start date of the graph to 2019-12-01. Last, use the “Add Line” tab to create a user-defined line. Create a line with start and end values of 100. To use the same graph style shown here, use the menus in the “Format” tab.

Suggested by Diego Mendez-Carbajo.