At the height of COVID-19, economists found at least one hopeful glimmer in a sea of dire data: productivity. In 2020, GDP per hour worked—a standard definition of labor productivity—saw its largest year-on-year increases since the 1970s: +4.5% globally, including +2.6% in the US.
This spike appeared to accelerate a revival for economies mired in a long-term productivity slowdown over the past decade. But 2020’s turnaround was short-lived, explains The Conference Board in its new report, Global Labor Productivity: Stagnating, But Still Above Prepandemic Levels.
“After a COVID-fueled surge in 2020, global labor productivity—defined as GDP per hour worked—stagnated in 2021 and is forecast to stall again in 2022,” said Klaas de Vries, economist at The Conference Board. “The lack of productivity growth in 2022 is driven in large part by the impact of the war in Ukraine, with weak output growth but robust labor input growth. Furthermore, lingering effects of the pandemic—driven by slowing growth in goods consumption and increasing service sector activities which tend to show below-average productivity—will likely weigh negatively on global 2022 productivity performance.”
After a pandemic-related surge in 2020, global labor productivity growth flatlined in 2021 and is likely to do so again in 2022.
- Globally, The Conference Board projects GDP per hour worked will remain roughly unchanged in 2022—marking a second straight year of stagnation despite rapid growth in output and employment around the world.
- This marks a disappointing return to weak productivity growth after the productivity spurt in 2020, and the hopeful signs in the years preceding it. In 2020, GDP per hour worked spiked +4.5% globally—and +2.6% in the US—after years of averaging anemic growth of just 1.4% and 0.7%, respectively. (See 2011-19 averages below)
- When COVID-19 hit, furloughs, fear, and stay-at-home orders caused a dramatic decline in hours worked that outpaced even the steep contraction in economic activity. While many economies were already seeing momentum toward higher productivity growth—US GDP per hour worked grew a strong +1.5% in 2019—it was the pandemic’s historically unique combination of forces that explained much of 2020’s surge in labor productivity, and why it proved so fleeting.
As lower-productivity services reopen—and the pandemic surge in goods consumption abates—pandemic-related productivity gains are receding.
- For much of the world, 2022 will see productivity decline, as the gains in hours worked—due to reopening of economies and the return of in-person activities—will outpace GDP growth. While overall productivity could remain above prepandemic trend levels, these gains may erode rapidly.
- Across mature economies, GDP per hour worked is poised to contract by −0.2% in 2022. These declines range from −0.2% in the US, to −0.9% in Germany, −1.3% in the UK, and −2.2% in Japan.
- The situation across emerging and developing economies is only slightly more positive, with GDP per hour worked likely to grow just +0.2% in 2022.
Surging inflation and the ongoing war in Ukraine will make productivity gains more important for sustaining growth but harder to achieve.
- Escalating costs for inputs, particularly energy, and supply chain disruptions leading to shortages of materials worsened following Russia’s invasion of Ukraine. These factors are likely to weigh on productivity growth this year and quite possibly in 2023 as well.
- The Ukraine war will intensify inflation pressures and limit the ability of companies to compete on pricing and costs. The longer these pressures exist, the more important productivity improvements will become.
- To offset rising input and labor costs, firms will need to redouble efforts to overcome weak productivity growth through innovation, restructuring, digital transformation, automation, improving efficiency, and investment in new business models.