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Why was Labor Productivity Growth So High during the COVID-19 Pandemic? The Role of Labor Composition

Jay Stewart


In the first few weeks of the COVID-19 recession, around 20 million people lost their jobs, with half of those losses occurring in the last two weeks of March 2020. On the tail of these unprecedented job losses, labor productivity grew at an annualized rate of 11.2 percent in 2020q2 and the average hourly wage increased sharply. I examine how these phenomena are related. Because most of the job losses were in low-wage industries or among low-wage workers in high wage industries, labor quality increased substantially. I find that this increase in labor quality accounted for nearly two-thirds of labor productivity growth in 2020q2, and that about 25 percent of the increase in labor quality was due to the change in the distribution of workers across sectors, mainly because of the massive job losses in Leisure and Hospitality and other low-wage sectors.