Why the Post-Pandemic Future Could Be Bright: Productivity Gains Could Be Here to Stay

Matthew Klein, "Why the Post-Pandemic Future Could Be Bright: Productivity Gains Could Be Here to Stay,"Barrons, January 8, 2021, https://www.barrons.com/articles/why-the-post-pandemic-future-could-be-bright-productivity-gains-51610143201

Why the Post-Pandemic Future Could Be Bright: Productivity Gains Could Be Here to Stay

The coronavirus has displaced tens of millions of workers, and forced thousands of businesses to close. But the virus has also encouraged rapid changes in the way we work and consume—and some of those changes could be both beneficial and long-lasting.

Once the virus is eradicated, higher productivity in retail, the reduction of long commutes by people working from home, and the conversion of offices and hotels to apartments could eventually make Americans better off than we were before. Some of the benefits could take years to materialize, but others are already here.

In fact, productivity has already grown at an 8% yearly rate since the pandemic began—the fastest pace of improvement since the 1960s. Output per hour worked tends to rise sharply during downturns as companies slash costs and the least efficient businesses are forced to close. Productivity grew more than 4% a year in 2002 and 2003 and by 6% in 2009, but just 2% each year from 2004 to 2007 and by only 1% each year from 2010 to 2019.

But there are reasons to think there are other, more positive forces at work this time around—and that the recent uptick could be durable even after society returns to normal. After all, productivity has kept rising even as many low-paid workers were rehired in sectors such as hospitality and retail. Spencer Hill, an economist at Goldman Sachs, thinks that “labor reallocation accounts for less than half” of the reported gains in productivity so far, which “argues against a rapid reversal of aggregate productivity next year” as the virus is eradicated.

Start by looking at how the virus has changed how Americans consume. It’s safer to buy goods online and have them delivered—or dropped off in the trunk of your car—than it is to go into a physical store. The desire for safety may pass once the virus is gone, but selling goods online is more efficient for many retailers, requiring fewer people and less expensive real estate to generate the same amount of turnover.

Since the pandemic began, the total real value of goods consumed has grown more than 7% while the number of people working in the goods distribution sector—retail, wholesale, truck transportation, warehousing, and delivery services—has dropped about 2.5%. Put another way, the amount of stuff Americans are able to buy from a given number of retail and logistics workers has jumped 10% in less than a year. That represents a dramatic acceleration of the long-running trend of Americans consuming more goods while employing fewer people in the distribution of those goods.

Then there is the rise in remote work necessitated by the pandemic. That’s not obviously a productivity booster for anyone with children at a time when schools are closed, but for many others, the absence of a commute saves an enormous amount of time and stress each day. Those gains would be widely shared once the virus is eradicated.

Before the pandemic, about 40% of Americans who didn’t work from home spent at least an hour commuting each day, with 10% spending at least two hours commuting back and forth. The share of Americans who worked from home full time was just 5.7% in 2019, although almost a quarter of American workers were working from home a few hours each day.

As of December, about 26% of full-time workers were doing their jobs from home to avoid the virus. Almost 60% of the workers in “business and financial operations occupations,” “computer and mathematical occupations,” “architecture and engineering occupations,” and “legal occupations” were working remotely.

The shift could free up valuable real estate currently used as office space. While it would initially be costly to convert buildings to needed housing, the longer-term gains could be substantial. Cost-conscious suburbanites might even choose to relocate to urban cores as apartment prices fall relative to wages and interest rates. Similarly, a permanent drop in business travel could free up buildings currently used as hotels for other uses.

These positive trends are occurring at a time when the private sector’s financial position is strong: the majority of Americans are richer than they were before the pandemic thanks to the rise in home values and stock prices, while businesses are flush with cash and earning record profits. Spending power is set to get a further boost thanks to the recently passed relief bill and the additional checks that will likely be distributed in the next few months, which should help lower the risk of permanent damage to workers and businesses.

Put it together, and the prospects for pandemic survivors could be better than what might have been reasonably expected at the end of 2019.

He flags one big trend, the acceleration of online shopping which has a surprising impact on productivity, “…selling goods online is more efficient for many retailers, requiring fewer people and less expensive real estate to generate the same amount of turnover. Since the pandemic began, the total real value of goods consumed has grown more than 7% while the number of people working in the goods distribution sector—retail, wholesale, truck transportation, warehousing, and delivery services—has dropped about 2.5%. Put another way, the amount of stuff Americans are able to buy from a given number of retail and logistics workers has jumped 10% in less than a year. That represents a dramatic acceleration of the long-running trend of Americans consuming more goods while employing fewer people in the distribution of those goods.Hill estimates that the changes in retail alone could boost America’s overall productivity growth rate by about 0.5 percentage point each year at least through 2022. For perspective, labor productivity rose just 1.4% each year on average from 2017 to 2019….”

Matt Klein stiches together some anecdotal evidence on the impact of pandemic on productivity, parallels your views on evolution, driven by extinction level events good factoid, "... In fact, productivity has already grown at an 8% yearly rate since the pandemic began—the fastest pace of improvement since the 1960s..”Granted those gains are inflated due to low skill workers leaving labor force.