The Impact of COVID on Productivity and Potential Output

Fernald, John G.; Li, Huiyu

doi:10.24148/wp2022-19

Working Paper

The Impact of COVID on Productivity and Potential Output

Abstract: The U.S. economy came into the pandemic, and looks likely to leave it, on a slow-growth path. The near- term level of potential output has fallen because of shortfalls in labor that should reverse over time. Labor productivity, to a surprising degree, has followed an accelerated version of its Great Recession path with initially strong growth followed by weak growth. But, as of mid-2022, it appears that the overall level of labor and total factor productivity are only modestly affected. The sign of the effect depends on whether we use the strong income-side measures of pandemic output growth or the much weaker expenditure-side measures. There is considerable heterogeneity across industries. We can explain some but not all of the heterogeneity through industry differences in cyclical utilization and off-the-clock hours worked. After accounting for these factors, industries where it is easy to work from home have grown somewhat faster than they did pre-pandemic. In contrast, industries where it is hard to work from home have performed extremely poorly.

Keywords: growth accounting; productivity; potential output;

JEL Classification: E01; E23; E24; O47;

https://doi.org/10.24148/wp2022-19