2 - Interpreting the “One Big Wave” in U.S. Long-term Productivity Growth

Summary

“The change in trend that came after World War II is one of the most interesting facts before us. There is little question about it. … the rate of growth in productivity witnessed by the present generation has been substantially higher than the rate experienced in the quarter-century before World War II.”

Solomon Fabricant, introduction to Kendrick (1961, p. xliii)

It is now more than twenty-five years since the growth rate of labor productivity and of multifactor productivity (MFP) decelerated sharply both in the United States and in most other industrialized nations. This slowdown in productivity growth, or “productivity slowdown” for short, has eluded many attempts to provide single-cause explanations, including fluctuations in energy prices, inadequate private investment, inadequate infrastructure investment, excessive government regulation, and declining educational test scores. The wide variation in productivity slowdowns and accelerations across individual industries also argues against a single-cause explanation. The slowdown has also been immune to multifaceted explanations, including those of the late Edward F. Denison (1962, 1979, 1985) to quantify the role of a slowdown in the growth of inputs and specific qualitative factors such as the movement out of agriculture and the spread of crime.

EXPLAINING THE “BIG WAVE”

When an important problem so completely eludes explanation, other possibilities are suggested. Perhaps we have been asking the wrong question. A basic theme of this paper is that slow productivity growth in the past 25 years echoes slow productivity growth in the late nineteenth century.