The Historic Decline in U.S. Productivity

2022 Was a Very Unproductive Year

Productivity is, or at least should be, the most important factor in American financial well-being. So, it’s a big deal when we suffer dwindling labor productivity. Last year, we saw the second largest annual drop in U.S. labor productivity history. I don’t think the media put a lot of effort into reporting it, but productivity shrank by 1.6%, the largest decline since 1974, when there was a similar plummet of 1.7%.

Is annual productivity going to snap back this year? Maybe. After all, it did back in 1975. But the first quarter of 2023 was not at all heartening, with quarterly productivity shrinking by 2.1%! So, let’s hope for good news when data from the second quarter is published on August 3rd.

What Happens If the Bad News Continues?

If that second quarter news is also bad, we can expect to see a lot of hand-wringing in the U.S., especially on the part of economists and business leaders. The debates about return-to-work and quiet quitting will grow more vociferous, and economists will warn that inflation is going to reemerge if things don’t change. After all, prices go up if it costs more to produce things. In the good times, productivity is what helps keep higher prices at bay.

That’s one reason I think a lot about the subject of productivity. It’s not just another economic metric. It’s a grand indicator of whether or not our whole socioeconomic system is working, both in the physical and the financial sense.

But How About that AI Boost?

Of course, many are now predicting that the new generative AIs will soon result in massive increases in productivity. But that’s not a given. For one thing, it often takes workplaces a long time to figure out how to adequately harness new technologies. This happened with everything from electricity to personal computers.

Maybe it’ll be be different this time around. People like Ray Kurzweil argue that AI will speed up the whole process of change. It’s all a matter of exponential rates of increasing returns.

Others are more dubious. Ezra Klein, for example, points out that the Internet should have resulted in a much larger boost in productivity than it did. But what wasn’t accounted for is that the Internet came with a very large dose of diversion. Suddenly people’s computers became distraction machines, and productivity was diluted as a result.

Klein thinks that this could happen with AI. For example, we may end up in deep conversations with our AI companions even as we fall behind on our work. Or, artificial intelligence will become such a major factor in everything from diverting movies to video games to virtual worlds that we will become more distracted than at any other time in history.

Time will, of course, tell. Personally, I make no predictions, but I can imagine several different scenarios. Maybe those will be a subject for a future post.

Is Going Back to the Office the True Cause of the Decline in Worker Productivity?

It runs against the conventional wisdom, but the Bureau of Labor Statistics data suggests that going back to the office is the true cause of the decline in worker productivity we’ve seen recently.

I was writing an article on long-term trends in U.S. productivity when I noticed that if you look at quarterly labor productivity data from the last few years, you see pretty solid productivity growth from 2020 through 2021 but then a hard dip in 2022.

I figured I couldn’t be the first person to draw the obvious conclusion that the return to office is pretty well correlated with a decline in worker productivity, and I was right.

Correlation Isn’t Causation But….

It turns out Gleb Tsipursky, Ph.D., wrote an article about this for Fortune magazine back in February. He even put together a handy-dandy graph based on Bureau of Labor Statistics data.

As Tsipursky neatly sums it up: “U.S. productivity jumped in the second quarter of 2020 as offices closed, and stayed at a heightened level through 2021. Then, when companies started mandating a return to the office in early 2022, productivity dropped sharply in Q1 and Q2 of that year. Productivity recovered slightly in Q3 and Q4 as the productivity loss associated with the return to office mandate was absorbed by companies–but it never got back to the period when remote-capable employees worked from home.”

Maybe There Are Other Reasons

Of course, correlation isn’t causation, and there may be other factors involved. For one thing, the pandemic meant that there were suddenly more people dropping (or being dropped) out of the workforce. In fact, the mini-recession we saw at the start of 2020 could help explain higher productivity numbers.

That’s because as employers shed more jobs, existing employees are forced to take on more work from their former colleagues. Also, new processes may be put in place to keep production relatively stable. Some have called this “cleansing out unproductive inputs,” which certainly sounds harsh but may have some element of truth, at least in the short run.

As the economy recovered, more people were hired back, which might help explain the decline in productivity figures.

Then There’s the Inflation Angle

Inflation demoralizes employees unless employers are matching inflation increases with increases in compensation. A survey from the HR Research Institute recently ask HR professionals, “What do you believe are your employees’ top five sources of financial stress? ” and the number one answer was “inflation issues,” cited by 62% of participants.

It makes sense that if employees feel they are doing the same work for less and less money each month, then they grow less satisfied, engaged and productive. And, although this problem is cumulative over time as employees lose their purchasing power, the highest spikes in inflation occurred in early 2022.

At the same time as this was happening, employees were spending more money on gas as they started to commute back to their workplaces.

Still, Somebody Needs to Tell the CEOs

Whether the increase in labor productivity was caused by an increase in remote work, a sudden spate of downsizings, and/or other factors, the bottom line is that business leaders should be careful not to assume that bringing people back into offices will automatically make them more productive. In fact, if the loss of productivity is being caused or influenced by higher inflation rates unmatched by higher compensation rates, then return to office mandates may make things worse rather than better.

Nonetheless, a lot of CEO seem to think that a return to office program is the way to go. Make It reports, “While half of employers say flexible work arrangements have worked well for their companies, 33% who planned to adopt a permanent virtual or hybrid model have changed their minds from a year ago, according to a January 2023 report from Monster.”

Best Not to Mention the Dog

How CEOs communicate about their desire to get more employees back in the workplace can be a tricky proposition and can result in public relations nightmares if not done well. A case in point is James Clarke, CEO of Clearlink, who was reportedly “slammed on social media after he praised an employee for selling his family’s dog to be able to return to the company’s office.”

I know nothing about Clarke. Maybe he’s otherwise a terrific business leader. But bosses may want need to rethink any allusions to dogs when it comes to return-to-work policies. Most Americans probably like their dogs way more than they like their fellow human beings, especially if those human beings are well-off CEOs forcing people to go back into the office on the perhaps faulty premise that it’ll boost productivity.

But Maybe It’s Not Even About Productivity

Of course, it could be that a lot of CEOs don’t really think it’s about productivity. Maybe it’s more about their own values and attitudes toward work and workers. Insider magazine quotes Joan Williams, the director of the Center for WorkLife Law at the University of California College of the Law: “These are men with very traditional views, who see the home as their wife’s domain and work as men’s domain. These are people like Elon Musk, for whom everything is a masculinity contest, and the workplace is the key arena. They have no desire to continue to work from home. This is not about workplace productivity. It’s about masculinity.”

So, some leaders prefer maculinity over employee performance? Is that the true cause of the decline in worker productivity?


The truth is, it’s complicated. I’m sure there are some female bosses who’d also like to see employees back in the workplace. And research from the HR Research Institute, where I work, shows that even a lot of HR professionals believe that their corporate cultures have suffered due to a massive move to remote work.

I imagine that a lot of this comes down to the specifics at any organization. Every company of signficant size has it own complex ecosystem of culture, policies, work processes and management quality. Business leaders need to make the best decisions they can given all these variables.

But they should keep in mind that a lot of employees might actually be more rather than less productive at home. If that’s true, the guy bosses should put their masculinity aside for the good of the organization. Save it for the handball court, the golf course, the corporate suite at the stadium, or whever they can let their testosterone (and views on dog ownership) flow unimpeded.

Featured image is from Awiseman, posted on Wikipedia at

Financial Wellness for All Americans

(Part 3 of 3)

We Can Do Better, and We Should

Employee financial wellness programs, of the kinds I described in my previous post, are a net good. But the U.S. can do better via partnerships among employers, nonprofits and government entities. We should have financial wellness for all Americans. Let’s think about how.

Don’t Hold Your Breath on UBI

There are some good and even powerful people working on the idea of a universal basic income (or UBI), which in theory would go a long way to improving the financial wellness of Americans. It may yet happen in the long run, though I remain skeptical that’ll be anytime soon.  In a country that still won’t even change it’s highly expensive and dysfunctional healthcare system, UBI feels unlikely.

Hurry Up and Make Online Education Free

But other things are, I believe, more achieveable. One of those is a universal, free higher education program in the U.S. I’ve outlined an idea for this in a previous post

It’s badly needed and will work better if employers are involved, able to incorporate their own online training and development courses into the offerings. This would give them a more direct pipeline to well-trained potential recruits.

Although my original proposal focused on online college education, it would not need to be limited to that. It could include trade schools as well, although trying to learn certain trades completely online isn’t feasible. There’s no replacement for hands-on learning in some fields.

Get with the Apprenticeship Program

This leads me to the idea of apprenticeship programs. We could, in part, crib from the very successful German apprenticeship programs, which include:

  • an employer-integrated and supported system in which apprentices not only get practical experience but paychecks as well
  • a well-strucured curriculum that truly prepares people for careers
  • cerifications that talent acquistion professionals recognize
  • accessibility by people who may not have stellar academic credentials but are willing and eager to learn

Figure Out How to Help Employees Save More

There are many possibilities here, but let’s point to an existing program as an example of how employers and the government can work together to increase employee financial well-being. The Secure Act 2.0 has already been passed into law. It seems like a worthy piece of legislation, though we’ll find out more once it goes into effective. Here are some of the features:

  • Automatic enrollment in retirement savings programs. Starting in 2025, most organizations with 401(k) and 403(b) plans will be required to automatically enroll employees.
  • Automatic enrollment of employees in emergency savings accounts, which are capped at $2,500 or less.
  • Various other savings related features, such as making it easier for savers to get their tax credits, being able to roll over unused 529 (that is, college saving) plan money, allowing people who are 50 and older to make additional “catch-up contributions” to their retirement accounts, and more.

There are other ideas that could be enacted as well. For example, a surprising number of Americans do not have access to traditional banking services, which can make it difficult to save money or access credit. By promoting financial inclusion and expanding access to banking services, more Americans can improve their financial well-being.

Ensure More Affordable Childcare

Childcare can be brutally expensive for many families. If we can increase affordable access to childcare, families will have a lot more money in their pockets to spend and to save.

Some child care costs more than college, but young parents haven’t had the time to save up for it. What’s more, it’s super costly to businesses. When childcare arrangements break down for any reason, parents are forced to scramble, and this results in $4.4 billion due to lost productivity.

What we do know, though, is that lowering the cost of child care could have a huge impact on the financial well-being of families with young children.

President Biden’s budget for the current fiscal year includes “an investment of $600 billion in early care and education that would fund states to provide universal preschool for four-year-olds and subsidize high-quality child care from birth to age five for families earning up to $200,000.”

The goal is that the lowest income families would pay nothing out-of-pocket and most families would pay no more than $10 a day per child. But with a divided U.S. Congress, it seems unlikely this kind of proposal will go through for now.

Get with Your Community

There are, of course, other ways of supporting employee financial wellness that do not involve government or employers. For example, there are financial support groups, both formal and informal. Various formal groups try to help people improve their ability to save money, build credit, gain a greater level of financial literacy, etc.  Then are more informal groups of friends or family members who can provide others with supportive networks and help them stay accountable.

Take a Look at Fintech

Some financial technology (fintech) companies offer new-fangled financial products and services, such as budgeting apps, online investment platforms, and digital banking services. I don’t use any fintech per se, but some people claim fintech’s latest apps and services are more affordable than the stuff coming from traditional financial services.

Caveat emptor, but they might be worth a try, especially for the younger employees they seem to be targeting.

Financial Wellness Has Become More Critical

As I write this, the media–both real and social–is rife with all kinds of economic doomsayers. Honestly, it’s wearing a bit thin. They’ve daily been predicting doom for a couple of years now.

Yes, they’ve often been wrong, but eventually we’ll get a honest-to-God recession. We always do. Maybe it’ll be a big ‘un, maybe it won’t.

Credit Card Debt Is Now High

But, to fair to the doomsayers, there are some bad signs. One of them is that, given inflation rates, more people are leaning on credit cards to afford necessities such as food and rent. In fact, total credit card debt rose to a record $930.6 billion at the end of 2022, an 18.5% spike from a year earlier, and the average balance rose to $5,805.

That all sounds pretty grim. But I should also note that delinquency rates on credit card are still pretty low by historical standards, something the doomsayers seldom mention.

Now, if people start losing their jobs in huge numbers, that could change pretty quickly. Till then, however, chill a bit, doomers.

Economic Indicators Are So-So

There are a lot of financial indicators you can look at to determine the health of an economy, such as:

  • treasury yield curves (slightly inverted, not a great sign)
  • unemployment rates, still very low (typically a good sign, unless you’re worried about an overheated, inflationary economy)
  • GDP growth (predictions for the first quarter of 2023 are all over the place, from -.5% to +1.1%, depending on the source)
  • then there are things like industrial production, durable good orders, and consumer spending, none of which look especially terrible right now

But a Lot of Consumers Are Really Hurting

So, the economic indicators are pretty mixed right now, though none look disastrous. But if you’re an American consumer, especially one in lower-income brackets, things are bleaker.

The Washington Post reports, “[T]he average lower-income family spends much more than it earns. These families live paycheck to paycheck and still can’t pay their bills; they typically bridge the gap between what they earn and what they spend with a combination of government benefits and loans.

Seeking Solutions, Not Scapegoats

These are great days for political demagogues, who focus on winding up frustrated people seeking someone to blame for their problems. These politicians seldom if ever have viable long-term solutions, but they are excellent at scapegoating and spreading outrage and fear,  hoping to accrue power that way.

And that’s part of my fear of what will happen if we, as a nation, can’t ensure the financial wellness of employees. Because if they’re not well, then they’ll become ever more likely to vote  in some despot who signals being a “strong leader.”

In the end, these dictatorial demagogues are the types of people who can set the nation back indefinitely in terms of civil liberties and basic morality. So, we want financially well Americans, especially working Americans, not just because providing such wellness is the right thing to do for them. But because it’s the right thing to do for all of us