Covid Lockdown Productivity is an Illusion

A study by economists Robert J. Gordon and Hassan Sayed argues “the pandemic appears to have created a resurgence in productivity growth with a 4.1 percent rate achieved in the four quarters of 2020.”

In other words, while many office and retail workers were working from home, productivity accelerated, the study says. Some will take that as confirmation that work from home actually does raise productivity. 

Maybe not. “We use the data to show how severely the quarterly pattern of aggregate productivity growth is distorted in 2020 by the change of the industry mix in which low-productivity industries suffered disproportionate losses of output,” say the National Bureau of Economic Research researchers. 

To be sure, the 2020-22 average productivity growth rates of 17 industries are highly heterogeneous, ranging from +10 percent to -9 percent at an annual rate.

“To provide insight, we divide the 17 industries into three groups: goods, work-from-home (WFH) services, and contact services,” the researchers say. “We show that WFH industries account for more than all of the positive productivity growth during 2020-22.”

What must be explained is productivity growth as output plummeted. The answer appears to be that “the apparent countercyclical behavior of productivity in 2020:Q2 reflected not a sudden outburst of creative innovation, but rather in large part a shift in the mix of output and employment toward higher productivity sectors of the economy,” the authors say. 

“While output and employment dropped everywhere, they declined at a much faster rate in the sectors where labor productivity and wages are relatively low,” say Gordon and Saved. 

“This shift in the industry mix reflects a relatively large decline in the employment of workers in low-paid industries where work involves close contact among employees, customers, or both, such as bricks-and-mortar retail trade and leisure/hospitality, and a relative increase in the employment of workers who could continue to work at home in relatively high-paid industries such as finance and information technology,” they note. 

In other words, we simply subtracted low-productivity workers from the sample, leaving a higher preponderance of “high-productivity” workers in the sample. 

Leave aside for the moment the question of whether knowledge worker productivity actually can be measured. The boost in productivity documented here actually results from removing substantial portions of the low-productivity workforce from the statistics. 

So average productivity rose, even if much of the real economy was shuttered. 

The point is that we need to be careful about claims that work from home actually increased productivity. This study only confirms that lots of low-productivity employees were out of work. We actually know very little about WFH productivity effects.