What’s going on:
EY-Parthenon – a management consulting firm – analyzed Bureau of Labor Statistics data and uncovered that employee productivity dropped in the first quarter of 2023. When compared to last year, employee productivity dropped 2.7%. It was a 0.9% decrease over the previous year, according to Fortune. The data shows that the U.S. has experienced five consecutive quarters of year-over-year declines in productivity – for the first time since 1948.
The data analysis suggests a modest (0.2%) uptick in employee output from the previous quarter, accompanied by a substantial 3% surge in hours worked. This data reveals an alarming trend of diminishing productivity, as employees are working slightly longer without producing proportionally greater results.
Why it matters:
Gregory Daco, chief economist at EY-Parthenon, believes that the decline in productivity worsens compensation pressures, pushes up unit labor costs, and contributes to inflationary pressures.
One possible reason for this decline in productivity is the high rate of job-hopping during the pandemic – known as the “great resignation”, which has made it difficult for employers to train employees and bring them up to pre-pandemic productivity levels.
Reportedly, a combination of inflation, burnout, and flexible work arrangements are all contributing to this downturn.
How it’ll impact the future:
The data suggests that the pandemic has led to a high rate of job-hopping and labor churn. Productivity is a key factor in determining the success of remote work and in-office work. The drop in productivity has implications for the Federal Reserve and monetary policy. As the economy recovers, a rebound in productivity will be crucial to solving many of its current issues — such as alleviating supply-chain constraints, labor constraints, capital constraints, and reducing inflationary pressures.
Daco remains optimistic that productivity numbers will trend towards normal again this year – which would help address these economic concerns.