Productivity Is About to Slump—and AI Won’t Come to the Rescue

By Megan Leonhardt  and Adam Levine – Barron’s

The history of technological innovation suggests it will take longer to reap the benefits of artificial intelligence than its champions realize. That spells problems for the economy. U.S. labor productivity growth averaged 2.2% annually since 2022, driven by investments, new businesses, and immigration, but these factors are now declining.

AI adoption is currently minimal, with only about 10% of businesses using it in September, and substantial economic benefits may take years to materialize. Economists project annual productivity gains will average 1.3% through the decade, potentially leading to U.S. GDP growth below 2% in coming years.

“The bulk of the postpandemic productivity outperformance has been driven by higher services productivity,” says Goldman Sachs Research economist Manuel Abecasis.

Yet the U.S. has now wrung out the majority of the productivity gains achieved through Covid-era business upgrades and workforce dynamics, while the most recent drivers of productivity growth, including full employment, fixed investment, and supply-side stability, are ebbing. As a result, the U.S. economy is approaching a potential inflection point: The factors that returned the economy to a roughly 2% annual productivity growth trend may not persist for much longer.

“With labor-force growth slowing due to demographics, the U.S. economy is increasingly reliant on productivity gains to drive growth and improve living standards,” says Adam Schickling, senior economist at Vanguard.