Productivity Soared 10.1% as Pandemic Stricken Businesses Slashed Workers and Hours

The pandemic has thrown millions of Americans out of work and slashed worker hours but output has fallen by a smaller amount, pushing up productivity even as the economy has slowed.

U.S. productivity rose at a 10.1 percent rate in the second quarter as the number of hours worked declined by the largest amount since the government started compiling the data more than 70 years ago.

The Labor Department said Thursday that hours worked fell by 42.9 percent, contributing to a 37.1 percent decline in output as the coronavirus pandemic ripped through nearly every corner of the U.S. economy. The decline in output was also the biggest dropoff since the government began tracking the data in 1947.

In its second and final estimate for the second quarter, the government said labor costs rose 9 percent, slightly less than last month’s first estimate of 12.2 percent. The original estimate for productivity was a 7.3 percent increase.

Productivity — the amount of output per hour of work — is the key to rising living standards, and the slow pace of growth in recent years has contributed to sluggish wage increases. Productivity mostly lagged during the record long 11-year expansion that followed the Great Recession, confounding economists.

From 2000 to 2007, the year the Great Recession began, annual productivity gains averaged 2.7 percent. But since then, productivity has slowed to about half that pace, rising at an average annual rate of 1.4 percent from 2007 through 2019. That rate rose to 1.9 percent in 2019 stoking some optimism for a resurgence in productivity, but the coronavirus pandemic hit in the first quarter of 2020, sinking the economy and dragging down virtually every economic indicator.

Economists have warned that the economic disruptions caused by the coronavirus would likely hinder productivity in coming quarters. Other observers, however, have said that productivity

Productivity tends to rise when layoffs soar. Workers still on the job are motivated to be more productive and are often more highly skilled than those let go. As well, employers assign work that had been done by laid-off workers to those still employed. Similarly, labor costs rise as many of the workers who keep their jobs are higher paid than recent hires, typically the first to be let go.

–The Associated Press contributed to this report.