The Impact of COVID on Productivity and Potential Output

2022-19 | September 1, 2022

The U.S. economy came into the pandemic, and looks likely to leave it, on a slow-growth path. The near- term level of potential output has fallen because of shortfalls in labor that should reverse over time. Labor productivity, to a surprising degree, has followed an accelerated version of its Great Recession path with initially strong growth followed by weak growth. But, as of mid-2022, it appears that the overall level of labor and total factor productivity are only modestly affected. The sign of the effect depends on whether we use the strong income-side measures of pandemic output growth or the much weaker expenditure-side measures. There is considerable heterogeneity across industries. We can explain some but not all of the heterogeneity through industry differences in cyclical utilization and off-the-clock hours worked. After accounting for these factors, industries where it is easy to work from home have grown somewhat faster than they did pre-pandemic. In contrast, industries where it is hard to work from home have performed extremely poorly.

Article Citation

Li, Huiyu, and John G. Fernald. 2022. “The Impact of COVID on Productivity and Potential Output,” Federal Reserve Bank of San Francisco Working Paper 2022-19. Available at https://doi.org/10.24148/wp2022-19

About the Authors
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John G. Fernald is a senior research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco, and a professor of economics at INSEAD. Learn more about John G. Fernald
Huiyu Li
Huiyu Li is a research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Huiyu Li