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Productivity After the Pandemic

Summary:
After years of disappointing productivity growth, the COVID-19 pandemic has shaken something loose, with surveys of business executives showing most reporting increased investments in technology. The danger now is that the pandemic-era acceleration of automation and digitalization impedes growth in labor income and consumption. BERKELEY – With COVID-19 vaccines being rolled out and supportive fiscal and monetary policies fueling aggregate demand, the US economy is poised to return to its pre-pandemic output level later this year. The labor-market recovery, however, will be much slower and unevenly distributed, with employment unlikely to return to its pre-pandemic peak until 2024. Build Back the State

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After years of disappointing productivity growth, the COVID-19 pandemic has shaken something loose, with surveys of business executives showing most reporting increased investments in technology. The danger now is that the pandemic-era acceleration of automation and digitalization impedes growth in labor income and consumption.

BERKELEY – With COVID-19 vaccines being rolled out and supportive fiscal and monetary policies fueling aggregate demand, the US economy is poised to return to its pre-pandemic output level later this year. The labor-market recovery, however, will be much slower and unevenly distributed, with employment unlikely to return to its pre-pandemic peak until 2024.

If output growth exceeds employment growth over the next few years, productivity will increase (at least temporarily). The Congressional Budget Office’s most recent forecast predicts labor-force productivity growth of 1.5% per year for the 2021-25 period, up from an average of 1.2% per year between 2008 and 2020.

In response to the pandemic, many firms – but especially large ones – have made significant strides toward boosting productivity through automation, digitalization, and the reorganization of operations, including a rapid shift to at-home work, to boost efficiency and resilience.

In a December 2020 McKinsey & Company survey of business executives in North America and six European countries representing about 40% of global GDP, 51% of respondents said they had increased investment in new technologies in 2020, and 75% said they planned to do so in 2020-24. By contrast, just 55% reported increased investments in 2014-19. Moreover, a 2020 survey conducted by the World Economic Forum (WEF) found that 80% of firms plan to increase the digitalization of their operations and expand their...

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