In the long run, a rising standard of living is always and everywhere based on productivity growth. Thus, Austan Goolsbee notedin a keynote address at the “Summit” conference held at the Stanford Institute of Economic Policy Research (SIEPR) in February (“Remarks on Productivity Growth and Monetary Policy,” February 28, 2025):
If you look at productivity growth, you’ll see that something weird and lovely has been happening over the past two years. Compared with the trend of the 11 years before Covid (figure 1), productivity growth since the end of 2022 has been notably faster. The slope of the line is steeper than the previous trend.
As Goolsbee notes, annual productivity numbers can jump around for a lot of reasons, and the period right after a pandemic might be especially prone to such jumps. Still, given the centrality of productivity growth and a couple of years of data, some speculation on possible causes doesn’t seem out of place. Goolsbee offers four possible explanations:
Economists have come up with four potential explanations. Three of those suggest this surge in productivity growth probably won’t continue.
The first explanation is that this is mostly just a reflection of the rise of work from home. … [I]f an increase in work from home drove the extra boost to productivity, that would be a one-time boost to the level of productivity, not a change to the overall growth rate going forward.
The second explanation is what economists call “labor reallocation and increased match quality.” Which kind of tells you why you should never ask for messaging advice from people with PhDs in economics. But this is just the idea that before Covid people were stuck in jobs they didn’t love and then the Great Resignation essentially let people rematch to do things that they are more motivated or better suited to do, and productivity went up. Even if you buy that as a driver, quit rates and other measures of job turnover are back to their pre-Covid levels, so the lovefest is probably done. This one, too, would be a one-time increase to the level of productivity, not a longer-lived change to the growth rate.
The third explanation is entrepreneurial dynamism: The number of startups each year was steady or falling for a long time, and it jumped at the start of Covid to a higher level and it hasn’t gone back down. But again, if new firms have higher productivity, this jump will show up as a one-time increase, not a sustained increase in the growth rate.
The fourth and final explanation is that this boom in productivity has been tech and AI driven. I realize that might have been where many of you first started, but note that economists are still skeptical—mainly because there hasn’t been enough adoption yet to explain why the economy-wide productivity growth rate would’ve increased this much. But here’s a key point, a key difference from the other three explanations: If this surge in productivity growth is the result of a new technology—whether that’s AI or something else—then history shows it is possible, that this surge is not just a one time bump. It could keep moving through the economy, industry by industry.
What evidence might distinguish between these theories? One potential angle is to look at productivity growth by industry, because some industries should be more heavily affected by certain explanations than others. Goolsbee comments:
Again, let’s remember if this surge were caused by work from home, labor reallocation, or more startups, we might expect to see broad-based, one-time-boost-type gains across many industries or concentrated in sectors with more work from home, et cetera. But that’s just not really what drove it. If you look at the industries experiencing the most significant productivity surge, seven or eight out of the top ten look tech or AI intensive … We’re talking about things like internet publishing, e-commerce, computer system design, renting intangible assets, motion picture and sound recording, and miscellaneous professional, scientific, and technical services.
Of course, this industry evidence doesn’t prove that AI is already the cause behind the productivity surge. It seems clear that one result of the pandemic was dramatically more widespread use of online services, including conferencing and related software tools, and that the tools themselves have gotten much better, too.
