Long live the labor shortage
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The pandemic destroyed the economies of rich countries. But there are signs that this wasteland may see a productivity boom.
An economist at The Conference Board, an American think tank, Suggest this is the caseAtaman Ozyildirim and Klaas de Vries predict that after the economic downturn in 2020, the total factor productivity of the US economy will grow by more than 2% in 2021. Invest more labor and capital in the post-blockade recovery.
If an interest rate of 2% is achieved, it will be enough to make up for the slight loss of TFP in 2020-a natural result of idle capital such as machinery-and constitute a huge improvement to the US TFP’s annual growth rate of roughly zero. Ten years before the pandemic.
The United States is not the only country showing signs of healthy productivity performance.according to OECD forecast, The pandemic has accelerated labor productivity growth in most high-income countries.
According to OECD data, in the U.S., from the fourth quarter of 2019 to the fourth quarter of 2022, this measure-GDP per hour worked-will increase by 6.7% in the three years of the pandemic . This is more than double the 3.3% in the previous three years.
The same acceleration is expected in all G7 countries.Japan is expected to increase labor productivity by 2% in the three years to the end of 2022-after that fall In the first three years. The three-year growth rate in Germany rose from 1.1% to 2.6%, France rose from 1.8% to 2.5%, Britain rose from 0.6% to 3.7%, and Italy rose from 0% to 1.4%. Among the nine largest wealthy economies, only South Korea experienced a slowdown in productivity growth during this period—the 4% rate is still impressive.
These predictions may be wrong. But given the vitality of the ongoing recovery, they seem reasonable. This will be a very pleasant surprise. Keep in mind that in 2019, economists worry that expansion after the financial crisis will quickly lose momentum, leading to a further deterioration of already sluggish productivity growth.
Why is there such a seemingly productive boom? It cannot be interpreted as an arithmetic artifact. If output declines more than working hours and the least productive workers lose their jobs disproportionately, the measured productivity can increase. Although this does improve the measured productivity of the United States, Significantly reduce labor In the spring of 2020, hourly work output in other wealthy countries fell sharply, and then recovered after the economy reopened.
In any case, employment by the end of 2022 Should be back Close enough to pre-pandemic levels, arithmetic alone cannot fully account for measurable productivity growth. Some improvements—if realized—must reflect real changes in labor efficiency.
If so, two issues are the most important. Why is productivity accelerating? What should be done to stabilize it at a permanently higher speed?
Higher productivity means more results with less effort, and since last year, high-income economies have achieved this goal in two obvious ways. As Ozyildirim and de Vries put it, “increased adoption of digital technologies may lead to productivity recovery… Slow labor supply growth and labor shortages may prompt companies to focus more on innovation by accelerating automation and digital transformation.”
It is easy to see how technology can improve productivity, from the leap from travel and commuting time saved by remote work to online sales and retail digital payments. For example, the government can encourage companies to keep their profits — instead of promoting restoration in terms of office occupancy.
Even more counterintuitive is that labor shortages can be a good thing for the economy. Almost every day there are headlines about managers complaining that they cannot find more employees and have to provide headlines for missing waiters or cleaners. In other words, you must do more with less, or increase productivity.
Economic history and common sense show that when supply exceeds demand, companies will improve their competitiveness by increasing productivity. If wages rise, they have no choice-otherwise their workers will be taken away by more efficient competitors.
Productivity growth may benefit from a combination of three things: anticipation of maintaining strong demand, affordable capital and technology, and training to continuously improve worker skills. Achieving this combination consistently means keeping employers vigilant to compete with workers.
The word “shortage” hides this fact behind the employer’s (completely understandable) complaint. But an economy that has enough demand for everyone’s contribution is a prosperous economy: an economy where workers enjoy opportunities, the market rewards increased productivity, and the prospects are worthy of investment and expansion.
Maintaining sustained strong demand pressure makes labor a little difficult to obtain, and should not be seen as a danger, but as a sign of economic success. While we hope to defeat the virus, we should learn to endure labor shortages.