Inflation and the labor market are both cooling, but a subtle force has powered strong U.S. economic growth nonetheless. Americans keep finding ways to get more done at work.

As a result, many businesses have been able to do more with less and up their revenue without passing on higher costs to customers—a process that makes this trend, called productivity growth, a key ingredient for a low-inflation economic boom. Over the past two years, better productivity growth has helped the U.S. power past similar economies such as the EU’s and Canada’s.

So far this year, the quarterly productivity of U.S. workers has grown by at least 2% compared with a year earlier. The three months through Sept. 30 were the fifth straight quarter of such growth. Over the past five years, quarterly year-over-year productivity growth has averaged 2.1%, a sharp improvement from growth over the 10 years prior.

In Europe, by contrast, productivity is lower today than it was in 2015, according to the EU’s statistics office. In Canada, annual productivity growth has averaged barely better than 0% since 2019.

In the U.S., productivity growth has been a critical development that has allowed for strong economic output and declining inflation, even as the labor market cools, Federal Reserve Gov. Adriana Kugler said in a speech this week.

“This is a hugely important development because it increases the productive capacity of the economy and allows more rapid economic growth without overheating,” Kugler said Tuesday.

Productivity surged during the early stages of the pandemic in 2020, at first mostly because many people in low-productivity jobs such as food service got laid off. As the economy reopened in 2021 and 2022, productivity slumped—but still remained above trend. And it reaccelerated last year, continuing to outpace the prepandemic pattern.

Though the trend is consequential it doesn’t come with simple explanations. The figures are adjusted for inflation, which means that greater productivity doesn’t merely reflect higher prices charged for the goods and services workers produce. Statistics don’t measure productivity directly—they only decipher it by measuring output and hours worked—so the numbers only offer hints about what kinds of changes are fueling these gains.

Some economists cite the pandemic as the origin of the U.S. productivity boom. Government stimulus sparked a surge of consumer demand, and low interest rates encouraged business investment, while enhanced unemployment benefits made job seekers harder to come by.

The combination left companies with no choice but to get more done with fewer people on staff—whether that meant turning more to new technology, such as self-serve checkout lanes at supermarkets, or simply forcing office workers to multi-task, said David Kelly, chief global strategist at JPMorgan Asset Management.

“We’ve basically had three years of a super-tight labor market,” Kelly said. “Productivity is just another word for no one left to hire.”

Adding to the mystery, American workers have achieved much greater productivity gains than their peers in countries that seem similar on the surface, such as Canada, Australia and most EU members. That suggests a secret sauce that has helped the U.S. post some of the developed world’s best growth figures.

Some economists have explained the divergence by turning to a uniquely American phenomenon: a vast pandemic reshuffling that matched workers with new opportunities, giving them a chance to earn more and contribute more.

The staffing crunch forced companies to hire workers into higher-responsibility roles than they otherwise would have, boosting those candidates’ productivity. And the rise of remote work allowed people to search across the whole country for jobs that would suit them best, yielding higher-productivity opportunities.

In the U.S., the format of the unemployment-insurance system and lighter regulation around work made this process more frictionless than in other major economies, said Philipp Carlsson-Szlezak, global chief economist at Boston Consulting Group.

“I view U.S. outperformance in this dimension as a silver lining of our very flexible labor markets,” Carlsson-Szlezak said. “Workers came back into the labor market and often moved up a rung or two on the productivity ladder.”

Assuming no one switched jobs more than once, about 35% of workers found a new employer in 2022, up from around 30% in typical years before the pandemic, according to a Pew Research Center analysis. Many of those pandemic-era job switchers probably found higher-productivity work, as reflected by stronger wage gains. In the 12 months through March 2022, 60% of job-switchers got a wage increase, compared with fewer than half of those who stayed at their old company.

Another contributor: a remarkable jump in the formation of new companies, which, especially in technology-driven fields, often reflect that an entrepreneur has conceived of a new way to do business more efficiently.

Since the start of 2021, the weekly number of high-propensity new-business applications—those with a strong likelihood of becoming sustainable businesses—has averaged about a third greater than during the four years before the pandemic.

Here too, the U.S. stands apart. The EU produces far fewer startups, and they tend to grow much less quickly, International Monetary Fund researchers wrote this fall.

Young small businesses are hotbeds of new ideas that, when successful, can spread productivity improvements on a grand scale, said Olivia White, a director at McKinsey Global Institute who has been studying productivity in businesses.

“The large businesses of the future are the small businesses of today,” she said.