America’s Productivity Punchup
| As we approach the end of the year, I can’t help but reflect on what a wild financial journey 2024 has been. I’m sure many of us can recall the headlines proclaiming it was a year ripe for recession. However, time has shown that America’s ingenuity and determination have not only kept a recession at bay but also helped U.S. labor productivity soar. Just take a look at the graph below! Even at a glance, it’s clear America has figured out the “secret sauce” for Labor productivity. |
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| What’s the secret? America’s technological innovation, paired with its fiscal policy (which often drives corporate policy), seems to be responsible for the drastic difference in comparisons above. I want to be clear that it’s the pairing of technology and fiscal policy that is so unique to the U.S. Either of these alone would most likely account for only a small percentage of America’s productivity boom. Take a look at the graph below, and even at a glance, it’s clear that America’s productivity growth has been on a sharp upswing since COVID, while other countries have struggled to rebound. Let’s break this down a bit more. |
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| When I say “fiscal policy,” I specifically mean policies that incentivize having a presence on American soil (which helps us flex our macroeconomic muscles when needed) and create jobs for U.S. workers. The amount of hours Americans work is also part of this. By and large, the U.S. sticks to a 5-day workweek. Compared to industrialized countries like Japan (who just announced a move to a 4-day work week), this provides workers more opportunity to earn and produce. This has, in part, been what has helped America stay within the top three ranked countries in productivity growth over time.
The newer component of America’s punch-up to productivity is the number of world-class patents in advanced digital technologies U.S. companies hold. Just look at how artificial intelligence companies are doing and how much talent they’re attracting at the moment, and you’ll get an idea of what’s helping productivity soar. For an even clearer picture of U.S. innovation at work, let’s compare U.S.-held patents to those held by the EU. |
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| So the question now is, how will the U.S. maintain its productivity gains? It’s hard to say, but emerging technologies like targeted generative AI for specific industries are poised to unlock new levels of efficiency. Combine this with some of America’s most cherished companies increasing their wages (looking at you, McDonald’s) and the potential for federal investments in key industries, and there’s a lot to be optimistic about.
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