The Case for an American Productivity Revival

Lee Branstetter and Daniel Sichel ()

No PB17-26, Policy Briefs from Peterson Institute for International Economics

Abstract: Labor productivity in the United States has been dismal for more than a decade. But productivity slowdowns are nothing new in the United States, and, like all its predecessors, the current slowdown will also come to an end as a new productivity revival takes hold. Four developments have the potential to contribute to faster productivity growth in the United States: improvements in the healthcare system, the increasing use of robots, a revolution in e-learning, and the globalization of invention. The authors gauge the potential productivity impact of these developments and suggest that US labor productivity growth would likely rise from the 0.5 percent average rate registered since 2010 to a pace of 2 percent or more. This outcome is more likely to depend on a supportive policy environment. The federal government should expand its support of basic scientific research; allow more immigration by highly skilled scientists, engineers, and entrepreneurs; and preserve America’s longstanding commitment to open trade and investment policies. It should also strengthen the safety net rather than pare back support for workers displaced by the innovations that will drive future productivity growth. If they avoid policy errors, President Trump or his successor could have the good fortune of presiding over a productivity revival.

Date: 2017-06
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