Productivity gap between states is getting wider. That’s bad for the U.S. economy.
Inflation, labor shortages and debt. Those factors, combined with others, slow down the U.S. economy to a surprising degree. In fact, successfully combating them to boost productivity in the United States could increase GDP by as much as $10 trillion over the next eight years.
That’s according to a new report from McKinsey Global Institute, which looks at some of the reasons productivity among American workers and businesses has slowed in recent decades, and what can be done to give it a boost. The report notes that since 2005, domestic labor productivity has grown at 1.4%, all while wage growth has remained sluggish and workforce participation has declined.
Cumulatively, all this has had an effect on the life of the average American; the report notes that increased prosperity and higher living standards can come from productivity growth, and productivity over the long term is closely linked to real wages.
Fluctuations in productivity have been pronounced, even recently. The latest productivity report from the Bureau of Labor Statistics, released at the beginning of February, shows that labor productivity increased 3% year over year during the fourth quarter of 2022. But, annual average productivity actually decreased 1.3% between 2021 and 2022, “the largest annual decline in the measure since 1974.”
While the U.S. economy as a whole has grappled with a series of productivity-sapping crises over the past couple of decades — including 9/11 and its aftermath; the global financial crisis and subsequent Great Recession in 2009; and, most recently, the COVID-19 pandemic — some states have proven far more productive than others. The report also finds that some states are “pulling away” in terms of productivity, while others are falling behind — a “pattern that is at odds with much of U.S. history.”
These are the states that are pulling away, or “are both more productive and increasing productivity faster than the
U.S. average,” per McKinsey’s report:
Washington, California, Colorado, Massachusetts, New York and Texas.
The above six states also supply one-third of the country’s jobs and 40% of the overall U.S. GDP.
On the other end of the spectrum, there are 25 states that lag behind, meaning they “have below-average productivity and slower-than-average growth,” and that together comprise 43% of total U.S. employment and 37% of real GDP. In alphabetical order, that group includes the following six states: Arkansas, Iowa, Louisiana, Michigan, Mississippi and Nevada.