U.S. Labor Productivity Growth Averages 2.5% Since Early 2023, Driven by TFP Rather Than AI Innovation, CEPR Reports

According to a report by the Center for Economic Policy Research (CEPR) released on July 16, U.S. labor productivity growth averaged 2.5% from early 2023 through the first quarter of 2026, a significant increase from the pre-pandemic average of 1.5% annually between 2005 and 2019. However, CEPR found that the gains were driven primarily by total factor productivity (TFP) rising 0.8 percentage points, rather than by technological innovation from generative AI.

CEPR's analysis revealed that companies have largely responded to demand pressures and uncertainty about AI's long-term impact by intensifying labor and increasing existing equipment utilization rates, rather than through genuine technological efficiency improvements. The think tank cautioned that this "squeezing" approach to productivity gains could drive up labor costs and fuel inflationary pressures, in contrast to authentic technological innovation, which typically supports economic growth without stimulating inflation.