Economic Commentary: Productivity, Australia, Returning to Work
IN THIS ISSUE:
- Today’s Investments Build Tomorrow’s Productivity
- Australia: Isolation Nation
- Returning To Work: Incentives Matter
Ryan offers thoughts on how the pandemic might affect productivity.
Last summer, I visited a newly expanded local brewpub. Once our party was seated at our reserved outdoor table, the host instructed us to access the restaurant’s online menu and order with our smartphones. All payments were made online, and the server’s only job was to carry food and drinks from the kitchen to the tables. I realized in hindsight that these enhancements allowed one waitress to attend to 20 tables at a time, without breaking a sweat. A productivity breakthrough was happening before my eyes.
Productivity is simply the ratio of output to input: the amount produced for a given unit of input, like an hour of labor or dollar of capital. As a broad economic measure, productivity is cited in terms of a whole nation’s output divided by the total number of hours worked.
In recessions, it is common for productivity to surge. When output falls, the number of hours worked also declines. Amid layoffs, the remaining workers put in extra effort to maintain production, leading to a brief rise in productivity.
Sustained productivity growth comes from investment: either businesses invest in technology and equipment to allow their workers to produce more, or workers gain training and experience to make better use of their time. The COVID-19 downturn prompted many businesses to increase their investments to sustain operations during a disruption; now, those same investments can set a higher course for productivity growth.
A higher trend for productivity would be welcome, as the pre-COVID-19 growth cycle was one of modest productivity gains. The slow pace of recovery after the 2008 financial crisis kept employers cautious about making investments, which limited incremental efficiencies. Productivity growth is a key component for economic growth, which raises standards of living and helps to keep debt levels sustainable.