Saturday, February 13, 2016

Why Does U.S. Productivity Look So Abysmal? It's Not Mismeasurement, Paper Says

From Real Time Economics:
The productivity of U.S. workers has been in a decadelong decline, according to official government measures, a vexing development that suggests continued slow growth for wages and for the overall economy.

But are those government figures getting it right?

One popular school of thought says the problem is measurement. That is, official statistics are geared toward a 20th-century economy of manufacturers rather than a 21st-century world of smartphones, broadband, GPS and other innovations that make workers more efficient and leisure time more abundant.

A working paper released this week examines possible mismeasurement. University of Chicago economics professor Chad Syverson doesn’t think the hypothesis adds up.

While intuitive and seemingly plausible, recalibrating for the latest advances still doesn’t account for a “substantial portion of the measured output lost to the productivity slowdown,” he wrote. “It also suggests that, more likely than not, much if not most of the productivity slowdown is real. Whether that slowdown will end anytime soon is an open question.”

In pure economic terms, the slowdown is a big deal. Productivity, a measure of output per hour worked, allows wages to rise without fueling inflation. And had productivity kept pace with the prior decade, the economy in the third quarter of 2015 would have been at least $2.7 trillion, or 15%, bigger than it was, Mr. Syverson calculates. That’s $8,400 per person or $21,900 per U.S. household.
Recalibrating for new technologies doesn’t come anywhere near closing that gap, according to Mr. Syverson’s research. There’s just not enough of a consumer surplus or enough of a boost in output at firms that make and service the latest technologies.

Furthermore, it’s not even clear mismeasurement is the culprit. The paper notes a broad slowdown across dozens of nations–regardless of the size of information and communication technologies in a particular nation’s economy.....MORE
Here's "Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown":

Chad Syverson

NBER Working Paper No. 21974
Issued in February 2016
NBER Program(s):   EFG   PR
The U.S. has been experiencing a slowdown in measured labor productivity growth since 2004. A number of commentators and researchers have suggested that this slowdown is at least in part illusory, because real output data have failed to capture the new and better products of the past decade. I conduct four disparate analyses, each of which offers empirical challenges to this “mismeasurement hypothesis.” First, the productivity slowdown has occurred in dozens of countries, and its size is unrelated to measures of the countries’ consumption or production intensities of information and communication technologies (ICTs, the type of goods most often cited as sources of mismeasurement). Second, estimates from the existing research literature of the surplus created by internet-linked digital technologies fall far short of the $2.7 trillion or more of “missing output” resulting from the productivity growth slowdown. The largest—by some distance—is less than one-third of the purportedly mismeasured GDP. Third, if measurement problems were to account for even a modest share of this missing output, the properly measured output and productivity growth rates of industries that produce and service ICTs would have to have been multiples of their measured growth in the data. Fourth, while measured gross domestic income has been on average higher than measured gross domestic product since 2004—perhaps indicating workers are being paid to make products that are given away for free or at highly discounted prices—this trend actually began before the productivity slowdown and moreover reflects unusually high capital income rather than labor income (i.e., profits are unusually high). In combination, these complementary facets of evidence suggest that the reasonable prima facie case for the mismeasurement hypothesis faces real hurdles when confronted with the data.