Opinion

The pandemic’s uncertain impact on productivity

The pandemic has certainly permanently affected our way of working. Whether this is for the better remains to be seen.

By: Date: September 28, 2021 Topic: Macroeconomic policy

A Greek language version of this piece was published in the Money Review section of Kathimerini and a Spanish version is forthcoming in El Economista.

 

Support provided to firms to protect economic activity and employment during the pandemic has been unprecedented in most European Union countries. This has helped sustain employment at pre-pandemic levels, as the blue line in figure 1 indicates.

But even if jobs might have been protected, the pandemic has undoubtedly affected the way work is done. Many workers have switched to telework and businesses have had to adapt to continue trading. The graph also shows that for those with higher levels of education, the pandemic has even created greater opportunities, with their employment rate rising. But this does not necessarily mean that overall the EU economy will be more productive in the future. The emerging evidence on the productivity impact remains inconclusive.

There are some reasons for optimism. Forced into a sudden and prolonged shutdown of the economy, about three-quarters of firms say the pandemic has helped them become more efficient and innovative. Nine out of ten firms have sped up the adoption of digital technology and automation and have therefore increased their overall agility. Coupled with massive macroeconomic support this has the potential to boost productivity. One survey found that this could lead to about one percentage point additional productivity growth over the next few years over previous expectations.

The prospect of teleworking has also the potential to increase productivity by allowing more flexibility. Many see advantages arising from greater overall flexibility, less commuting time and increased connectivity. In some professions, the potential for teleworking is enormous.

However, there are also pitfalls. Not all jobs are suited for teleworking or more flexible working. This is true at the individual level, where one must take into consideration an employee’s tasks, role and personal preferences. But it is also true at the collective level, if there is high interdependence of tasks. In more hybrid working environments, many issues will have to be rethought, including how to best coordinate tasks, manage teams and provide equal career opportunities for all. It remains to be seen whether this will lead to overall increases in productivity.

Other indicators suggest expectations of the pandemic’s effect on overall productivity should be more pessimistic, not least because of the costs firms had to face at the outset of the pandemic. Despite the support given, many firms will exit the crisis with larger debts. Evidence from the United Kingdom shows that these short-run costs could lead to a productivity reduction of 1% for years to come, compared to pre-pandemic estimates.

Furthermore, there have been clear winners and losers from the pandemic. Digital technology and pharmaceuticals, for example, have seen their activities boom. On the other hand, hospitality, tourism and also energy have come to partial or complete standstills. In addition, the winners of the pandemic, such as IT and digital services, are also those with high concentration power. Unless counteracted, this power would work against innovation and productivity in the future. Similarly, households at opposite ends of the income distribution have weathered the pandemic very differently, leading to possible scarring effects.

Then there is the question of how integrated global trade will remain. The pandemic has provided some justification to the idea of repatriating certain parts of production, thus reducing the length of global value chains. Sometimes forces of protectionism are behind this, but it can also be the wish to increase resilience. Either way, this process will lead to an increase in overall costs and will reduce competitiveness.

Last, there are a number of societal implications that will put a pressure on labour productivity. School and university closures have meant loss of education, particularly for the most vulnerable in society. A September 2020 OECD study suggested that students affected by school closures during the pandemic may earn as much as 3% less over their lifetimes, unless measures are put in place for catching up. This translates to an average of 1.5% lower long-term growth in nations where these closures were the most marked. These numbers are worse for certain segments of society, like the lower educated.

The pandemic has certainly permanently affected our way of working. Whether this is for the better remains to be seen.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article Download PDF More on this topic
 

Working Paper

The effect of COVID certificates on vaccine uptake, public health, and the economy

An analysis of the incentive effects of COVID certificates on vaccine uptake, health outcomes and the economy.

By: Miquel Oliu-Barton, Bary Pradelski, Nicolas Woloszko, Lionel Guetta-Jeanrenaud, Philippe Aghion, Patrick Artus, Arnaud Fontanet, Philippe Martin and Guntram B. Wolff Topic: Digital economy and innovation Date: January 17, 2022
Read article More on this topic
 

External Publication

Europe must come together to confront Omicron

Statement published in the renowned British Medical Journal (BMJ) to address the wave of the Omicron variant of SARS-CoV-2.

By: Miquel Oliu-Barton, Guntram B. Wolff and Group of authors Topic: Global economy and trade Date: January 13, 2022
Read article More on this topic
 

Blog Post

European governance

What will be the impact of Europe’s next round of COVID-19 restrictions?

As COVID-19 cases surge, the choice of restrictions, and the details of their implementation, can have a major influence on the degree to which business is impacted.

By: J. Scott Marcus and Lionel Guetta-Jeanrenaud Topic: European governance Date: December 23, 2021
Read article More by this author
 

Podcast

Podcast

Last but not the least

An overview of economic policy and beyond in 2021.

By: The Sound of Economics Topic: European governance, Global economy and trade Date: December 22, 2021
Read article
 

Blog Post

European governanceInclusive growth

12 Charts for 21

A selection of charts from Bruegel’s weekly newsletter, analysis of the year and what it meant for the economy in Europe and the world.

By: Hèctor Badenes, Henry Naylor, Giuseppe Porcaro and Yuyun Zhan Topic: Banking and capital markets, Digital economy and innovation, European governance, Global economy and trade, Green economy, Inclusive growth, Macroeconomic policy Date: December 21, 2021
Read article Download PDF More on this topic More by this author
 

Working Paper

mRNA vaccines: a lucky shot?

How can the background of mRNA technology development help us understand how public vaccine research and development policy can be improved to generate the full global social benefits from breakthrough novel vaccine technologies?

By: Reinhilde Veugelers Topic: Digital economy and innovation Date: December 13, 2021
Read article
 

Blog Post

Inclusive growth

The triple constraint on artificial-intelligence advancement in Europe

Skills, data and financing shortcomings constrain artificial-intelligence innovation in Europe.

By: Mia Hoffmann and Laura Nurski Topic: Digital economy and innovation, Inclusive growth Date: December 6, 2021
Read article More on this topic More by this author
 

External Publication

Country case studies on resolving problem loans in Europe: Crises, policies and institutions

Contribution to 'Nonperforming Loans in Asia and Europe—Causes, Impacts, and Resolution Strategies' published by the Asia Development Bank.

By: Alexander Lehmann Topic: Banking and capital markets Date: December 3, 2021
Read about event More on this topic
 

Past Event

Past Event

Fiscal policy and rules after the pandemic

What are the possibilities for shaping the new fiscal policy?

Speakers: Zsolt Darvas, Maria Demertzis, Michel Heijdra and Katja Lautar Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 24, 2021
Read article More by this author
 

Blog Post

Fiscal arithmetic and risk of sovereign insolvency

The record-high debt levels in advanced economies increase the risk of sovereign insolvency. Governments should start fiscal consolidation soon in an environment of low nominal and real interest rates and post-COVID growth.

By: Marek Dabrowski Topic: Global economy and trade, Macroeconomic policy Date: November 18, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Pandemonium

How did Europe respond to the pandemic?

By: The Sound of Economics Topic: European governance Date: November 17, 2021
Read about event More on this topic
 

Past Event

Past Event

Phasing out COVID-19 emergency support programmes: effects on productivity and financial stability

How can European countries phase out the COVID-19 support measures without having a negative impact on productivity and financial stability?

Speakers: Eric Bartelsman, Maria Demertzis, Peter Grasmann and Laurie Mayers Topic: Macroeconomic policy Date: November 9, 2021
Load more posts