It has been 48 months since the beginning of the COVID downturn, marking the deepest economic shock since the Great Depression. Unemployment rates soared to 14.8%, with estimates peaking at over 20%. In comparison, the highest national unemployment rate during the Great Depression was just over 24% in 1933.
With the widespread availability of the COVID-19 vaccine, the unemployment rate has significantly decreased, remaining below 4% for two consecutive years – the longest period in over 50 years. While some may argue that having nearly one in 25 people unemployed is concerning, it is essential to recognize the natural job churn that occurs within a healthy economy.
During periods of low unemployment, wage growth tends to increase as workers have more negotiation power. However, low unemployment can also hinder productivity growth, as even low-skilled workers secure jobs, allowing low-productivity firms to stay afloat.
Despite this trend, recent data shows a surprising 4% growth rate in labor productivity over the past three quarters of 2023. This growth has boosted both GDP and wages, hinting at continued improvement in 2024.
Factors contributing to this productivity growth include demographics and investment in Technology. The movement of Millennials and Gen-Xers into their most productive years, along with advancements in productivity-enhancing technologies, are key drivers of this growth.
Overall, this period of sustained productivity growth signals a potentially strong economic environment ahead. If this trend continues, it could mark a significant shift after a quarter century of economic challenges.
*Michael J. Hicks, Ph.D., is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.*
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