Is working from home a deterrent?
An editorial by Ernie Goss, Ph.D., Creighton University Jack MacAllister Chair in Regional Economics
The US economy continues to add jobs at a very strong pace, yet the overall economic expansion as captured by gross domestic product growth, remains well below the historical average of 3% to 4% at 1.3% (annualized and seasonally adjusted) for the first quarter of 2023.
How is this possible?
The answer: workers are fewer and less productive.
The chart below shows a clear downturn in worker productivity since 2020 even as job growth has remained strong. In fact, this is the worst period of labor productivity growth recorded since 1947.
Other potential reasons that reported job growth overstates the health of the US economy include:
Response rates for the government employment survey have fallen from 64.0% in February 2013 to 43.9% in December 2022. A lower response rate produces a higher standard error for the job reading.
Companies are holding on to low productivity employees rather than laying off due to an inability to hire replacements.
The average work week declined to 34.3 hours in May 2023 from 34.7 hours in May 2020. This is equivalent to losing 1,800,000 jobs.
Employees working from home are likely overstating the hours that they are actually working weekly.
The most important measure of economic progress is labor productivity. Falling labor productivity will generate lower wages, higher inflation, or both. If future generations are to enjoy the fruits of a market economy, this downturn, that began in the third quarter of 2020, must be reversed.