Evening Must-Read: The Recent Rise and Fall of Rapid Productivity Growth

John Fernald and Bing Wang: The Recent Rise and Fall of Rapid Productivity Growth: “Information technology fueled a surge in U.S. productivity growth…

…in the late 1990s and early 2000s…. The exceptional pace of productivity growth has disappeared, returning to roughly its pre-1995 pace…. The important factor after 2003 is slower growth in innovation…. Fernald (2014a)… finds that the slowdown was in sectors that produce IT or use IT intensively….One slice of the data focuses on the “bubble” industries of the mid-2000s, that is, construction, real estate, finance, and natural resource[s]…. The contribution of bubble industries to overall TFP fell–becoming more negative–between the 2000–04 and 2004–07 periods. But the contribution of the remaining three-quarters of the economy fell even more…. The non-bubble industries are divided into three mutually exclusive groups: IT producers, intensive IT-users, and other industries that do not use IT intensively…. The TFP slowdown is concentrated in industries that produce IT or that use IT intensively…. Three out of the past four decades have seen business-sector productivity growth near 1½%. We could well see future growth in that range. Of course, such a forecast would completely discount the fast growth of 1995 to 2003…. Pessimists argue that IT is less important than great innovations of the past that dramatically boosted productivity, such as electricity or the internal combustion engine. Optimists point to the possibilities offered by robots and machine learning…

February 13, 2015

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