Interpreting volatility in quarterly labor productivity

Labor productivity—defined as output per hour—exhibited a notable degree of volatility during the COVID-19 pandemic recession and its aftermath. This article focuses on this aspect of quarterly labor productivity data, discussing its underlying sources, ways to interpret it, and alternate measures that offer additional perspective on quarter-to-quarter changes. The COVID-19 pandemic ended the longest economic expansion of the post-World War II era and brought on the shortest recession of this period.1 The dramatic contraction and subsequent recovery in economic activity during the pandemic period facilitated historically large changes in labor productivity.2 In the second quarter of 2020, as many businesses shut down and the economy stalled, labor productivity spiked 17.3 percent. This gain was the second largest quarterly increase in the labor-productivity series, which begins in 1947. In contrast, as the recovery progressed, labor productivity fell 6.0 percent in the first quarter of 2022—the third-largest quarterly decline in the series (see chart 1).