U.S. worker productivity has dropped significantly, including in key large states, leaving some economists alarmed by the decrease in a measure that could mean trillions of dollars to the economy.
Labor productivity — the value of the goods and services produced on average by an hour’s work — ranged from $58.80 in Mississippi to $120.67 in New York last year, according to a Stateline analysis of federal Bureau of Labor Statistics data released in May.
Thirty-seven states and the District of Columbia saw worker productivity drop from 2021 to 2022 after adjustment for inflation. So far this year, productivity nationwide dropped through the first quarter.
Service technicians work to install the foundation for a transmission tower at the CenterPoint Energy power plant in Houston.
Lower productivity raises the cost of goods, slowing the economy and threatening wages. That hurts residents’ quality of life and the profits that feed tax coffers.
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Even states that have led productivity in recent years had decreases between 2021 and 2022 — California, New York, Texas and Washington. From 2007 to 2019, those states contributed more than half the country’s productivity growth.
Some economists see the unprecedented drop in national productivity numbers as an alarm bell, though others see it as an expected reset from pandemic highs, when tech industries in California and Washington soared along with the financial industry in New York. Only nine states had productivity drops when comparing 2019 with 2022.
Gregory Daco, a chief economist for Ernst & Young, called the recent decrease a “recessionary signal” in a May 4 tweet, noting that the five consecutive year-to-year quarterly declines through early 2023 had never happened since the BLS began calculating the statistic in 1948.
“The economy remains in a productivity slump at the moment,” Daco wrote in an executive briefing for clients. Likely reasons, Daco wrote, are labor market churn causing businesses to lose skilled employees as well as unequal access to technology that could speed up work.
Several factors could be at play, economists say. A labor shortage has brought more new and untrained people to work, and the post-pandemic resurgence of service and hospitality jobs has added more low-wage jobs back to the mix.
Experts debate whether the rise of remote work has lowered productivity. And some commentators have argued that the drop is because workers are exhausted from years of pandemic stress.
Energy-producing and tourism-dependent states took the biggest hits in productivity: Alaska was down 7.1% to $99.80, Louisiana down 6.1% to $72.90, Nevada down 5.9% to $71.06, Hawaii down 5.3% to $75.39, and North Dakota down 5.1% to $90.28.
That could be another sign of difficulty in energy-producing states, which had a hard time capitalizing on high oil prices last year because of workforce shortages. Hawaii and Nevada could be seeing the impact of a revival in tourism: Those industries are key in those states but are lower-paying on average than white-collar jobs that were more pandemic-proof.
The only sizable increase in productivity was in Idaho, which saw an influx of tech workers moving from California and Washington state. Idaho, which was up 4% to $65.51, in 2021 had the lowest labor productivity except for Mississippi, but in 2022 it surpassed Arkansas, Maine, Montana and South Carolina.
The U.S. as a whole could add $10 trillion to its economy over the next decade by returning to historical patterns of high productivity growth, according to a February report by the McKinsey Global Institute.
Despite last year’s decline, authors of the McKinsey report still see large states like California leading the way in future productivity, McKinsey spokesperson Rebeca Robboy said.
The report, which analyzed pre-pandemic trends through 2019, cited California as well as Colorado, Massachusetts, New York, North Dakota, Texas and Washington as “both more productive and increasing productivity faster than the US average.” With the updated numbers, only Texas has dropped off the list, Robboy said.
McKinsey does not see the drops between 2021 and 2022 as a sign of recession, and the “jury is still out” on whether remote work is a culprit, Robboy said.
While business leaders point to remote work as a possible cause of decreased productivity, in a phenomenon some researchers call “productivity paranoia,” other economists are skeptical.
It’s hard to measure the difference between remote and on-site work productivity, said Jose Maria Barrero, an economist and co-founder of the WFH Research project, which analyzes the phenomenon of working from home.
“I am very skeptical that remote work is dragging down productivity. There are more mundane reasons to explain why productivity has fluctuated,” Barrero said. For the average worker, 30% of work is now done at home, and that figure hasn’t changed much in the past year, he said.
“Profitability at the firms employing these knowledge workers rose for pandemic-related reasons,” Barrero said. “2020 and 2021 were bumper years for the financial sector as firms sought cheap capital, and there was a similar boom in tech.”
How businesses can help employees boost their productivity
How businesses can help employees boost their productivity
According to a new study, workers who went to the office devoted about 40 more minutes a week to mentoring others, nearly 25 more in formal training and about 15 additional minutes each week doing professional development and learning activities.
Raise pay
Raising the minimum wage—the U.S. average living wage was $24 an hour in 2022—has been a key method over the past 10 years for companies seeking to improve productivity rates.
While several states and Washington D.C. have increased their minimum wage in recent years, the federal minimum wage has remained at $7.25 per hour since 2009. Over roughly that same time, from 2007 to 2021, the Bureau of Labor Statistics found that workers’ productivity increased by an average of 1.4% a year.
“Nationally, labor productivity grew slightly faster than compensation,” the BLS reported. So while pay didn’t always increase accordingly, workers were more productive. But companies, especially at a time of record corporate profits, have an opportunity to do better, by surprising workers with raises.
A 2018 report from Harvard Business Review said that “research … has found that when a company gives unexpected pay increases, workers often reciprocate [the gesture] by working harder than is required (even if they don’t worry about getting fired).”
Part of the research includes a 2016 Management Science study that notes “unexpected gifts” generate a worker’s reciprocity to their company and motivates them to stay at a good-paying job—as long as those higher-paying jobs keep paying more than their competitors.
Engage everyone
Workers who feel energized and excited about their work—something often measured as employee engagement—are associated with higher performance, a more dedicated work ethic, and staying longer at the company, according to management consulting firm Qualtrics.
Gallup found an 18% increase in productivity in sales when employees were engaged at work or became involved and enthusiastic in their work and workplace. But the company’s polling also found that just 33% of U.S. employees felt engaged at work in 2022.
One way to increase engagement—and, in turn, productivity—is to ask workers to track their own outputs. For knowledge workers in particular—people like software developers, writers, and researchers—tracking their own efforts can boost productivity by helping them “understand and reflect on how they spend their time,” according to a 2019 academic study.
Reject the open office, embrace solitude
It has long been known that open offices hurt productivity by providing workers with lots of distractions and interruptions. An academic study published in 2020 found that workers in private offices performed 14% better than employees in open-plan offices on a cognitive task.
Indeed, the rise of remote work during the pandemic led to claims—and evidence—that workers were more productive, with less commute time, more control over their environments, and more time to focus on their own work without dealing with a room full of colleagues.
Of course, one way employers can keep productivity up is to continue to allow people to work from home. But if some workers have to be in the office at least some of the time, employers can still keep their output high by providing private offices and considering compensation for the time or costs spent commuting to work.
No-meeting days
We’ve all been there. “This meeting could have been an email” is as much of a meme as it is a serious critique of time management. It is useful for team members to check in with each other about progress on shared efforts, and get updates on people’s priorities, schedules, and availability.
To accomplish those goals without making everyone sit around a table or gather virtually on a Zoom call, researchers suggest setting up a work Slack channel with conversational prompts, set at the same time each day. In general, fewer meetings do lead to more productivity, according to Harvard Business Review research.
Another way to reduce the likelihood of meetings is to declare companywide days without meetings—not for supervisors, managers, high-level executives, or even with clients. A 2022 MIT Sloan Management Review study found that one meeting-free day a week increased productivity and helped them feel less stressed and less micromanaged.
Other benefits to no-meeting days include extended time for focusing on tasks and encouraging everyone to think more carefully about meetings so that when they do occur, they can be more “specific, efficient, and accountable,” according to corporate management consultant Gordon Jenkins.
This story originally appeared on ClickUp and was produced and distributed in partnership with Stacker Studio.
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