top of page

Blog - Covid will boost productivity

I am in the optimists’ camp when it comes to the effect of Covid-19 on productivity. The changes forced on us by the virus could bring a major boost to productivity in coming years, despite some potentially negative effects like having more zombie companies. This blog is a summary of a longer paper in our latest Quarterly publication. It gives 4 reasons for higher productivity and considers 3 potential barriers. For a copy of the publication please email

Working from home is more productive

A survey by Microsoft found that only 18% of employers thought their firms were less productive during the 2020 lockdowns than before while 44% thought them more productive. Another survey from Mercer found a similarly positive result with 28% of firms saying their employees were more productive, 7% less productive and 65% believing productivity was broadly unchanged.

One reason is that people are working longer hours as they save time on commuting and getting ready for work. Another is that people face fewer interruptions and distractions (at least those without young children). The surveys also suggest employees are more engaged because of the extra flexibility provided and, often, the nicer working environment. The Mercer survey found that 82% of employers are planning on implementing flexible working on a greater scale than pre-pandemic. Of those 82%, 77% cited employee engagement and productivity as a reason while 35% mentioned reduced costs of real estate or labour.

Less business travel

The greater adoption of video meetings will reduce business travel, saving time and money (ie boosting productivity). That said, business travel may not be permanently reduced. Experience with communication technologies, going back at least to the telephone, is that they open up new opportunities and tend to lead to more travel in the long run. There is a substitution effect but also an expansion effect.

Digital services delivery

The greater use of digital technologies has opened up new possibilities for online delivery of services. For example, in education online delivery can reduce classroom requirements, or require fewer teachers or administrators. In health, online consultations for simple problems and prescription renewals can replace some face-to-face meetings.

Online admin offers huge savings

One of the biggest areas of productivity gains may be with increased digitisation of routine administration. Although already widespread before Covid there is plenty of room for more firms to offer it and more people to use it. With people forced to be more digitally savvy, the use of online forms, bookings, orders, registrations and signatures will expand, saving companies resources in face-to-face admin or call centres. Much of the technology used in 2020 is not new but wider adoption is what drives productivity.

Potential barriers to productivity

The extent to which these new opportunities are embraced will depend partly on the dynamism and flexibility of companies, where we expect the US to take the lead. The widespread use of furlough schemes in Europe may prove to be a barrier as labour resources are not so widely redeployed.

Another potential barrier is the increased prevalence of zombie companies, defined as companies whose cash flow cannot cover their interest expense. A BIS study in 2018 found that the number of listed zombie companies had increased significantly since the 2008-9 recession, reaching an average 8% of listed companies by 2017.

The final threat to productivity from the Covid crisis is that governments may decide to raise taxes to reduce deficits and bring down debt burdens. If taxes must be raised then small changes in rates across broad-based taxes such as income tax, social security taxes and VAT would be the best, or else taxes on ‘bads’ such as carbon or road congestion. Unfortunately, governments may choose higher taxes on capital. The UK has had a lively debate on this recently and the instincts of the Democrats in the US would be to go this way. By damaging enterprise and investment such moves would lower productivity.

Perhaps I am an optimist but I think these trends will net out positive. Time will tell.

John Calverley, Chief Economist


bottom of page