Is America’s productivity boom here to stay?
Austan Goolsbee in his remarks at the 2025 SIEPR Economic Summit discussed the recent and notable acceleration in productivity growth in the U.S. since the end of 2022, exceeding pre-Covid trends. As he put it: “something weird and lovely has been happening over the past two years.” Goolsbee outlines four main explanations for the productivity surge:
- Work from home: Flexibility may have provided a one-time productivity boost, but this is unlikely to sustain higher growth rates in the long term.
- Labor reallocation/match quality: The “Great Resignation” allowed workers to find better-suited jobs, temporarily raising productivity. However, job turnover has normalized, suggesting this effect is likely over.
- Entrepreneurial dynamism: An increase in new business formation since Covid could have raised productivity, but this too is expected to be a one-time level shift, not a permanent growth rate increase.
- Technology and AI: If the surge is driven by new technologies like AI, it could represent a lasting change, similar to past general-purpose technologies (e.g., electricity, computers). However, economists remain cautious, as widespread adoption has not yet fully occurred.
Evidence and industry trends
- Analysis of 63 U.S. industries shows that those with the largest productivity gains are predominantly tech or AI-intensive sectors (e.g., internet publishing, e-commerce, computer system design).
- This pattern suggests technology may be playing a significant role in the recent surge.
Implications for monetary policy
- Historical parallels are drawn with the late 1990s, when the Fed allowed the economy to run hot amidst rapid productivity gains, resulting in low inflation.
- However, premature anticipation of continued productivity growth could lead to overinvestment, asset bubbles, and short-term economic overheating, as seen in the dot-com era.
Remarks on Productivity Growth and Monetary Policy
By: Austan Goolsbee – Federal Reserve Bank of Chicago
Current shifts in U.S. productivity growth: a model approach
In this paper, Alexander Cline, James A. Kahn and Robert W. Rich use a regime-switching econometric model to analyze U.S. productivity growth. This model allows for shifts between two regimes: high-growth and low-growth periods and incorporates quarterly annualized growth rates for labor productivity, real wages, and real consumption (relative to labor hours), covering the period from 1947:Q2 to 2024:Q3. Data through 2019:Q4 are used for estimation to avoid distortions from pandemic-related outliers, but the model provides probability estimates for the full period.
Historical trends:
- Since World War II, U.S. labor productivity growth has averaged 2.2% annually, but with significant periods of higher and lower growth.
- The model identifies clear transitions: a slowdown in the early 1970s, a resurgence in the late 1990s (IT revolution), and another slowdown after 2005.
Recent developments:
- Productivity growth surged in the last three quarters of 2023, averaging 3.6% annually.
- The model currently estimates a 41% probability that the U.S. economy is in a high-growth productivity regime, a notable increase from pre-pandemic estimates but still below even odds.
- Upward revisions to productivity, real consumption, and real compensation data since 2019 have contributed to the increased probability of a regime shift.
Cautions and uncertainties:
- The model requires several quarters of data to confirm a true regime shift, and previous episodes have shown that early signals can sometimes be reversed.
- Some of the recent productivity gains may be temporary, linked to post-pandemic supply chain normalization and remote work, rather than sustained technological progress.
- The impact of generative AI on productivity is still largely prospective; most experts believe it has not yet significantly affected recent growth rates.
- Measurement issues: There is evidence that productivity gains, especially from IT and intangible capital, may be underestimated in official statistics, potentially biasing trend estimates downward.
- Policy implications: Recognizing shifts in productivity trends is crucial for policymakers, as misjudging the trend can lead to inappropriate monetary or fiscal responses.
Is High Productivity Growth Returning?
Authors: Alexander Cline, James A. Kahn, Robert W. Rich
From: Federal Reserve Bank of Cleveland
