It doesn’t seem like we’re in the middle of a recession despite all the talk. The bars and restaurants are full nationwide. Airlines are bracing for record traffic. People are forking over thousands to see Taylor Swift. Americans are still spending recklessly.but negative forces are pulling the global economy down.
There are so many jobs being created and filled that the Bureau of Labor Statistics recently had to revise higher data for the last two months.
The global economy is being dragged down by negative factors – one of which is difficult to feel in real time. That would be productivity, which measures how efficiently a company and its employees work.
A major disconnect is this: while companies keep hiring into a hot market, they’re not getting the most out of their workers, which is causing a stealth Global economic slowdown.
Here is a chart showing productivity’s recent decline. The downward inflection point occurred at the end of 2021, after which the line declined meaningfully for the first time in more than a decade. There has been a five-quarter decline in labor productivity year-over-year for the first time ever.
In addition to improving a population’s standard of living, productivity also means using technology to improve workflows and overall efficiency, as well as training existing employees on how to make the most of these tools. Productivity is a critical component of the economy, but it goes well beyond simply getting people to work harder.
Former Treasury Secretary Larry Summers attributed the drop to less inspired employees participating in “quiet quitting” and “bare minimum Monday” trends.
In October, Summers told The Washington Post that there was a “certain amount of absenteeism on and off the job” due to a highly empowered workforce.
In addition to remote work, tech titans like Marc Benioff and Mark Zuckerberg have warned that the rise of remote work is negatively impacting productivity.
It could be that labor hoarding is to blame for the worsening of the situation. As revealed by Insider back in March, Walmart, Target, and Kroger were locked in a heated battle over hourly staff, causing wages to increase. BNP Paribas also found in their December research that this practice is particularly destructive during an economic recession as it reduces efficiency.
People who were eager to return to work filled vacant jobs and put in the hours after COVID, resulting in a brief surge in productivity. However, the gains made during the pandemic were unsustainable, which led to the current situation.
A growing chorus of experts believe they have an idea on how to turn things around given how hard it is to pinpoint the cause of the productivity slowdown.
AI’s impact
AI tools are the most obvious counterpoint to the ongoing productivity slowdown. The ChatGPT phenomenon from OpenAI has sparked a flurry of interest — and investment — in the space, igniting a veritable arms race among tech giants.
Stanford and MIT researchers found that workers at a Fortune 500 software company were 14% more productive when given generative AI tools.
Brookings Institute, Paul Tudor Jones, and Ed Yardeni, who said AI would usher in a new era, agreed.
In the next decade, Goldman Sachs predicts that AI’s positive impact on productivity will drive profits — and, by extension, the stock market — higher. According to the firm, AI-driven productivity could keep the S&P 500 on its upward trajectory in the long run.
The positive impact on productivity has yet to appear in the data. Meanwhile, the decline in productivity is alarming the Global economy.
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