Description
US GDP has bounced back from the shock of the pandemic, surpassing pre-pandemic output and closing in on pre-pandemic forecasts. Employment, however, has taken longer to return, so the economy is producing more than before the pandemic with fewer jobs.
Payroll employment, the number of jobs in the US economy, was almost 2 percent short of pre-pandemic forecasts in the first quarter of 2022, the equivalent of around 3 million jobs. Meanwhile, real GDP—GDP adjusted for inflation—has recovered faster, sitting just 0.6 percent short of its pre-pandemic forecast.
One reason the economy can produce more with fewer jobs is that many workers are working longer hours. Average weekly hours increased from 34.4 in 2019 to 34.8 during the pandemic. Workers are also producing more per hour of work. Productivity in the nonfarm business sector increased at an average of 2.3 percent between the end of 2019 and the end of 2021, compared with 1.3 percent in the five years prior to the pandemic. This growth likely reflects a combination of factors, including firms' investment in new technology, businesses becoming leaner, a step up in innovation during the pandemic, and temporary effects that may reverse.
What does this mean going forward? It depends on whether faster productivity growth persists. Over the long term, higher productivity gains should translate into higher worker wages. In the short run, it may help limit growth in unit labor costs, relieving some of the pressure on firms to pass their higher wage costs on through higher prices.
This PIIE Chart is based on Karen Dynan and Wilson Powell III's blog post, US employment and wages are rising briskly amid strong labor demand.
