2NC – Productivity – Economy

Vries 23 [Klaas de Vries; Senior Economist with The Conference Board, master’s degree in history from the University of Groningen and continues his coursework in economics; 3/3/23; “Slower US Labor Productivity Points to Slower Economic Growth Ahead”; https://www.conference-board.org/topics/recession/Slow-US-labor-productivity]

Labor productivity growth is often seen as the ultimate source of economic growth and improvement in standards of living. Therefore, recent weak readings in the US have become a cause for concern. After a steep rise in 2020, labor productivity growth moderated in 2021 and declined sharply in 2022, the worst decline in the post-WWII era.1 On the one hand, there may be more noise than a tangible signal in these data, given a labor market recovery that trailed the real GDP recovery, particularly in 2022. On the other hand, even if this noise is reduced, productivity did poorly in 2022. Labor productivity growth in 2023 is expected to decline again given the expected recession later in the year and ongoing chronic labor market shortages. Labor productivity growth may return in 2024 and beyond; we project it to expand moderately at rates higher than those in the decade that preceded the pandemic. Insights for What’s Ahead • US labor productivity declined in 2022 and is forecast to decline again in 2023. Labor productivity is not measured directly, but rather derived from changes in GDP and total hours worked. Total hours worked grew well above average in 2022, while output growth moderated and even declined in the first two quarters of 2022. • The weak 2022 reading compares with a small pandemic boost to productivity growth in 2020 and 2021. Labor productivity expanded at a rate that was well above average in 2020. Weaker growth in 2021 and the decline in 2022 are partly a result of “payback” from this surge. However, there is some evidence that underlying productivity growth was relatively strong in 2020 and 2021, extending an upward moving trend from previous years. • Weak labor productivity points to slower economic growth ahead. Slow productivity growth worsens labor shortages: it increases the demand for workers which is already elevated due to ageing and early retirement. Slow productivity growth also deepens inflationary pressures. If employers are not able to compensate higher wages with increased revenue from higher productivity, higher costs will likely be passed on to consumers. This may lead to further inflationary pressures across the economy, which may necessitate stricter monetary policy and hence lower economic growth.