What Explains the Post-2004 U.S.Productivity Slowdown?

Alexander Murray

No 2017-05, CSLS Research Reports from Centre for the Study of Living Standards

Abstract: Economic theory and history show that labour productivity growth is the main driver of rising living standards, so changes in the trend rate of productivity growth have profound implications for a society’s future prosperity. The average annual rate of business sector labour productivity growth in the United States declined by 1.9 percentage points between the 1995-2004 period and the 2004-2015 period, from 3.2 per cent to 1.3 per cent. Based on original data analysis and a review of existing literature, this report summarizes the state of knowledge on the causes of the post-2004 slowdown in U.S. productivity growth. Official growth accounting estimates indicate that 60-65 per cent of the labour productivity decline is accounted for by a decline in total factor productivity growth, while 30-35 per cent is accounted for by a decline in the rate of capital deepening (i.e. growth of capital per hour worked). Three industries, collectively representing 28 per cent of business-sector hours worked in 2015, account for over 80 per cent of the aggregate labour productivity decline: manufacturing, wholesale trade, and retail trade. The aggregate productivity slowdown is traceable to a decline in the productivity contributions arising from industries that produce or intensively use information and communication technology (ICT) products. The decline in the productivity contribution of ICT was driven by some combination of a) slower technological progress in ICT and b) a reduction in business dynamism in the ICT sector resulting in a decline in the rate of resource reallocation from lessproductive to more-productive firms.

Keywords: Economic Theory; Labour Productivity; Living Standards; Growth; U.S.; Recession; Academics; Literature (search for similar items in EconPapers)
JEL-codes: E24 F43 J11 J24 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-eff and nep-mac
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