The productivity gap between states is getting wider. That’s bad for the U.S. economy


The United 
States economy is being slowed down to an unexpected degree due to factors such as inflation, labor shortages, and debt, amongst others. A new report released by McKinsey Global Institute states that if these issues are combated and productivity is increased, the US GDP could rise by as much as $10 trillion over the next eight years. This report also reveals that since 2005, labor productivity has grown by 1.4%, however, wage growth has been slow and workforce participation has declined. This trend has had a negative impact on the lives of average Americans, as productivity growth is closely connected with real wages. 

The most recent productivity report from the Bureau of Labor Statistics, released in February, showed that labor productivity had increased by 3% in the fourth quarter of 2022, however, annual average productivity had decreased by 1.3% between 2021 and 2022, the largest annual decline since 1974.

The US economy has experienced a series of crises over the past couple of decades, including 9/11, the global financial crisis, and the COVID-19 pandemic, however, some states have proven more productive than others. McKinsey's report states that some states are "pulling away" in terms of productivity, whilst others are falling behind. The six states which are more productive and increase productivity faster than the US average are Washington, California, Colorado, Massachusetts, New York, and Texas, which together contribute one-third of the country's jobs and 40% of the US GDP. In comparison, the 25 states which have below-average productivity and slower-than-average growth are Arkansas, Iowa, Louisiana, Michigan, Mississippi, Nevada, and others, and these states make up 43% of total US employment and 37% of real GDP.

The report also identifies the eight cities which have the nation's highest productivity and are helping their states move up the rankings. These are San Jose, San Francisco, Seattle, Houston, San Diego, Los Angeles, New York City, and Boston.

McKinsey's team suggests that the most significant challenges in boosting productivity are insufficient skilled labor supply, uneven technology adoption, and stalling investment. In order to add $10 trillion to the US national output by 2030, a solution needs to be found to any of these issues. If a solution is found, it could lead to increased prosperity and higher living standards for the US population.

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