The September ECB staff projections have already seen a marked downward revision of labour productivity growth for 2023, mainly on account of lower expected growth. Yet, two distinct features of the current cycle suggest that productivity growth may become structurally weaker. [20] One is the acute worker shortage, which may force firms to hoard labour during the downturn.
The decline in real wages reinforces this channel by making hoarding more attractive. The second feature is that the pandemic has failed to kickstart a process of Schumpeterian “creative destruction”. Contrary to previous recessions, business insolvencies fell sharply, mainly reflecting the widespread use of job retention schemes. A decline in productivity may be one side effect of these otherwise highly successful programmes.