Workers are less productive in key states. What it means for the economy.

Even states that have led productivity in recent years had decreases between 2021 and 2022.

By: - June 6, 2023 5:00 am
Workers at a power plant in Houston in 2022.

Workers install a power plant transmission tower in Houston in 2022. Labor productivity fell in most states last year, even in key large states such as California and Texas. Brandon Bell/Getty Images

U.S. worker productivity has dropped significantly, including in key large states, leaving some economists alarmed by the decrease in a measure that could mean trillions of dollars to the economy.

Labor productivity — the value of the goods and services produced on average by an hour’s work — ranged from $58.80 in Mississippi to $120.67 in New York last year, according to a Stateline analysis of federal Bureau of Labor Statistics (BLS) data released in May.

Thirty-seven states and the District of Columbia saw worker productivity drop from 2021 to 2022 after adjustment for inflation. So far this year, productivity nationwide dropped through the first quarter.

Lower productivity raises the cost of goods, slowing the economy and threatening wages. That hurts residents’ quality of life and the profits that feed tax coffers.

Even states that have led productivity in recent years had decreases between 2021 and 2022 — California, New York, Texas and Washington. From 2007 to 2019, those states contributed more than half the country’s productivity growth.

Some economists see the unprecedented drop in national productivity numbers as an alarm bell, though others see it as an expected reset from pandemic highs, when tech industries in California and Washington soared along with the financial industry in New York. Only nine states had productivity drops when comparing 2019 with 2022.

Gregory Daco, a chief economist for Ernst & Young, called the recent decrease a “recessionary signal” in a May 4 tweet, noting that the five consecutive year-to-year quarterly declines through early 2023 had never happened since the BLS began calculating the statistic in 1948.

“The economy remains in a productivity slump at the moment,” Daco wrote in an executive briefing for clients provided to Stateline by Ernst & Young. Likely reasons, Daco wrote, are labor market churn causing businesses to lose skilled employees as well as unequal access to technology that could speed up work.

Several factors could be at play, economists say. A labor shortage has brought more new and untrained people to work, and the post-pandemic resurgence of service and hospitality jobs has added more low-wage jobs back to the mix.

Experts debate whether the rise of remote work has lowered productivity. And some commentators have argued that the drop is because workers are exhausted from years of pandemic stress.

Energy-producing and tourism-dependent states took the biggest hits in productivity: Alaska was down 7.1% to $99.80, Louisiana down 6.1% to $72.90, Nevada down 5.9% to $71.06, Hawaii down 5.3% to $75.39, and North Dakota down 5.1% to $90.28.

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Tim Henderson
Tim Henderson

Tim Henderson covers demographics for Stateline. He has been a reporter at the Miami Herald, the Cincinnati Enquirer and the Journal News.