The COVID-19 Recovery May Cause Lasting Changes in Technology and Productivity

Productivity unleashed: The spread of COVID-19 appears to have crested in the nation’s hardest-hit metros, and businesses are gradually reopening. Historically, economic recoveries have been accompanied by a surge in productivity due to workforce reductions—the COVID-19 recovery could see the same trend.

• During the last recession, between 2007 and 2010, worker productivity jumped 7 percent—the fastest increase in two decades.
• The current crisis could create a new surge of worker productivity as businesses eliminate redundant positions and retain only their most productive workers.
• Telework has shown great promise as a potential productivity booster as many organizations have embraced video conferencing during the pandemic, allowing workers to salvage hours previously wasted commuting to work and traveling to off-site meetings.
• The rise of remote work may also alleviate some of the distortions caused by the exorbitant cost of living in coastal metro areas.

The time for transformational technology: Many businesses tend to be inherently conservative, embracing big changes only when their current business model has been upended. The novel coronavirus’s disruptions may serve as a transformational catalyst across the economy.

• The shutdown of physical storefronts has boosted e-commerce considerably—Walmart saw a 74 percent increase in online sales in Q1.
• During the shutdown, e-commerce has even been making inroads into car sales and real estate viewings.
• COVID-19 revealed a lack of flexibility and surge capacity in the US medical system. Consequently, the healthcare sector has had to embrace efficiency-improving technologies that may have a lasting effect on the way patients receive care.

Some things may stay the same: COVID-19 has created a great deal of uncertainty and dislocation throughout the economy, but corporate profits are poised to regain their high levels and the labor market is likely to make a swift rebound.

• The durability of corporate profits has helped keep the equities market resilient in the face of uncertainty.
• Investors are confident that after-tax profits will continue to capture 9 to 10 percent of the nation’s GDP, up from their 6 percent postwar average.
• Nearly 40 million workers have been displaced from their jobs (some temporarily, while lockdowns are in place) by the pandemic.
• However, after every recession, the American economy has created jobs at an above-trend pace.
• The return to full employment is the economy’s most consistent tendency, supported by the Federal Reserve’s mandate to maximize employment through monetary policy.
• That said, a second wave of COVID-19 cases or delays in the development of a vaccine could hinder the recovery and return to full employment.
• Despite this spring’s abrupt downturn and the accelerating pace of technological transformation, the recovery will likely create new opportunities for displaced workers.

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