From the Conversable Economist, April 7:
A couple of recent reports review the evidence about the productivity slowdown. Gustavo
Adler, Romain Duval, Davide Furceri, Sinem Kiliç Çelik, Ksenia
Koloskova, and Marcos Poplawski-Ribeiro have written an IMF Discussion
Note called "Gone with the Headwinds: Global Productivity
(April 2017, SDN/17/04).
Over at the McKinsey Global Institute, James
Manyika, Jaana Remes, Jan Mischke, and Mekala Krishnan have written a
Discussion Paper on "The Productivity Puzzle: A Closer Look at the United States" (March
2017). Both reports offer an overview of the productivity slowdown,
along with discussion of possible causes and policy recommendations.
At least for me, the underlying causes of the productivity slowdown,
which has now been going on for more than a decade, are not yet clear.
Thus, my approach is to compile a bunch of patterns and try turn them
over in my mind, trying to figure out a sensible way in which they fit
together. In a similar spirit, the authors of the McKinsey report write:
"We identify six characteristics that provide further insight into the
productivity growth slowdown: declining value-added growth, a shift in
employment toward lower productivity sectors, a relatively small number
of sectors experiencing jumps in productivity, weak capital intensity
growth across all types of capital, uneven rates of digitization across
sectors (especially the large and often relatively low-productivity
ones), and slowing business dynamism."
Here's some additional description of these six factors: of course, the McKinsey report has more detail.
1) Productivity is output divided by a measure of inputs, like labor
hours worked. Changes in the growth rate of productivity can be driven
by either the numerator or the denominator. The most recent productivity
slowdown seems to be a numerator problem.
"Looking closely at productivity growth, we find differences in the role
the denominator, hours-worked growth, and the numerator, value-added
growth, have played in recent years. For example, the period between
1995 and 2004 is considered an era of high growth with annual
productivity growth averaging about 3 percent. However, we have found
two distinct periods within this decade. The first is from 1995 to 2000
when productivity growth spiked, driven primarily by an increase in
growth of real value-added output. Value-added output growth for the
total economy, which averaged 3.4 percent annually from 1991 to 1995,
increased to 4 percent from 1995 to 2000, a period of booming consumer
and IT spending. As a result, productivity growth increased from 1.4
percent to 2.0 percent. The subsequent era of 2001 to 2004 was a period
of continued high productivity growth, averaging 3.6 percent a year.
However, the underlying driver was a decline in hours-worked growth,
which fell to negative 0.2 percent partly as a result of the tech crash
and the restructuring wave in manufacturing of the early 2000s. So while
these two periods are typically treated as a single period of booming
productivity growth, we prefer to separate them as the implications for
investment, industry evolution, and job expansion are very different.
...
"What is striking about productivity growth after the recession ended in
2009 has been low value-added output growth compared with past
periods.32 Growth in real value-added output has declined to 2.2 percent
between 2009 and 2014. This compares to growth of roughly 3 to 4
percent in prior time periods."
2) A shift of the economy to sectors with slower productivity growth
"reduced productivity growth by 0.2 percentage points every year for the
private business sector between 1987 and 2014, as employment
transitioned from high-productivity manufacturing sectors to
lower-productivity sectors such as health care and administrative and
support services."
Of course, this raises a question about how well the "output" of these
service sector jobs are measured: for example, perhaps certain jobs in
health care care do more to improve health than they did 30 years ago,
but that benefit is probably not well-captured in the economic
statistics....
...
MORE
