Covid boosted productivity. Post-Covid will boost it more

The Covid-19 pandemic seems to be ending almost as abruptly as it began. Across the U.S., states are dropping restrictions on business activity and people are resuming normal lives.

Throughout the pandemic, there's been evidence that remote work has increased the productivity of some workers and businesses. So it's natural to wonder whether a mass return to the office will lead to productivity declines.

I doubt it. Productivity is likely to be choppy over the next year, with some aspects of post-pandemic life leading to gains and others pushing in the opposite direction. But after the economy settles into a post-pandemic new normal this year, the likelihood of improvement over the next several years is high.

Output per hour of work — productivity — soared in the second quarter of 2020. In normal times, this would have been great news. But the reason for the surge was negative: The pandemic was crushing the economy, and businesses laid off their least-productive workers. The resulting boost in output per hour was a sign of economic weakness rather than strength.

Expect something similar over the next few months, but in reverse. According to my calculations, there are around 10.8 million fewer jobs in the economy than there would have been without a pandemic. Most will come back over the next two years. Many of the jobs lost are in lower-productivity sectors like retail and travel. So as workers return to these jobs, another wrinkle in economic statistics will emerge: The process of job-market healing will put downward pressure on measured productivity.

Adjusting to post-pandemic life will be another temporary factor that will slow productivity growth. On Monday, I tried working a full day in the office for the first time since March 13, 2020. My commute was rocky. I wasn't sure what traffic patterns would be like, and I didn't know where to park. When I arrived at my desk, I realized I couldn't easily participate in Zoom meetings for lack of a digital camera. I burned half an hour just figuring out what to do for lunch.

Naturally, I got less work done. My productivity must have hit a record low. Millions of workers will experience similar adjustment issues that will take weeks or months to sort out.

Though much of the debate has focused on how remote work has increased productivity, let's remember that the pandemic made many workers less productive, not more.

Particularly over the past few months, people have complained about how hard it has become for them to do their jobs remotely as major business decisions need to be made, new employees need to be trained and acculturated, and the absence of spontaneous interactions with colleagues took an increasing toll. 

Once the economy settles into a post-pandemic new normal, though, I expect productivity growth to be stronger than the tepid, roughly 1% annual rate the U.S. experienced over much of the last decade.

Workers will figure out how to work from the office again, and the drag from readjustment will fade. After 14 months of remote work, businesses should know better than ever how to strike the right balance between the advantages and disadvantages of a work-from-anywhere culture. This could lead to the best of all worlds, with the businesses that have suffered due to Covid-19 restrictions able to bring employees back to the office and those that are flourishing with remote work continuing that practice.

Companies that continue with remote work will continue to downsize office space and save on related expenses. This will allow those resources to be used for other purposes — think of converting them to private residences in places plagued by housing shortages — increasing economic efficiency and productivity.

Another reason to expect strong post-pandemic productivity growth is that companies often use economic downturns to change the way they do business, including restructuring their workforces to boost output per hour. The pressures to do so have been intense over the past year.

Some of the most productivity enhancing aspects of pandemic life will likely stick around, at least to some degree. The market share of e-commerce businesses won't shrink back to pre-Covid levels. Because online retailers require fewer workers and square feet, this shift will boost output per hour in the retail sector.

And count on less business travel. For some people, the frequency of travel will return to normal. But many have learned that the reason they used to travel so much was simply because of the lack of an alternative that was widely accepted by the broader business culture. Virtual meetings are now not only acceptable, but in many cases preferable. According to one survey, businesses expect virtual meetings to triple relative to their share before the pandemic. That would save time and money, enhancing productivity.

There are other reasons to be bullish about productivity over the coming decade that have little to do with the pandemic. But that's another column. Suffice it to say that workers and businesses will get a lot more out of each week than they did during the previous decade. As normal life resumes, that's another welcome change.

Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and Arthur F. Burns Scholar in Political Economy at the American Enterprise Institute. He is the author of "The American Dream Is Not Dead: (But Populism Could Kill It)."

Disclaimer: This article first appeared on bloomberg.com, and is published by special syndication arrangement