Sources of the Transatlantic Productivity Slowdown
Sunday, Jan. 5, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Dale Jorgenson, Harvard University
Does Disappointing European Productivity Growth Reflect a Slowing Trend? Weighing the Evidence and Assessing the Future
AbstractIn the years since the Great Recession, many observers have highlighted the slow pace of productivity growth around the world. This paper focuses on the European experience, where we highlight that trend TFP growth has been slowing since the 1960s. Part of that slowdown reflected the relatively benign effects of convergence—TFP levels were catching up to U.S. levels. However, since the mid-1990s, European economies have typically been diverging from the U.S. level of TFP. The pre-recession timing thus suggests that it is important to consider factors other than just the deep crisis itself or policy changes since the crisis. In our view, European economies have still not managed to adapt fully to a knowledge based economy, in terms of the necessary flexibility, skills, management, and such. In other words, the productivity challenges are much the same as they were prior to the Great Recession.
The Circular Relationship between Productivity Growth and Real Interest Rates
AbstractIn most advanced economies, both real interest rates and productivity growth have slowed down since the 1980s. In this paper, we explore the mechanism whereby these two quantities are connected. On the one hand, productivity is a key driver of potential output, which in turns affects the level of interest rates, on other hand, the level of interest rates is a determinant of the expected return from investment projects, and therefore of the minimal productivity level required for such an investment. In the absence of a technology shock, according to the model w present, this specific relationship can generate an equilibrium where growth and interest rates are low. We test this using macroeconomic data on 17 OECD countries. Using the estimated coefficients, we evaluate that the decrease of long term interest rates by five percentage points since mid-1980s, in average in developed countries, could have contributed to a decrease of TFP growth by around half of a percentage point over the same period. Knowing that the average TFP slowdown on that period was in average about two percentage points, it means that we don’t have the whole story, but a large part of it (approximately 25%). By comparison, using other estimates from Bergeaud et al. (2017), we evaluate that education and technology slowdown could also contribute to explain xx% of the TFP one. We also use the estimated parameters to propose different simulations of the effect of a temporary technology shock.
The Industry Anatomy of the Transatlantic Productivity Growth Slowdown
AbstractBy merging KLEMS data sets and aggregating over the ten largest Western European nations (EU-10), we are able to compare productivity growth by industry and its sources for the U.S. and the EU-10. We interpret the EU-10 performance as catching up to the U.S. in stages, with its rapid growth of 1950-72 representing a delayed adoption of the inventions that propelled U.S. productivity growth in the first half of the 20th century, and the next EU-10 stage for 1972-95 as imitating the U.S. outcome for 1950-72. We show that both the pace of aggregate productivity growth during 1972-95 for the EU-10 as well as its industrial composition matched very closely the growth record of the U.S. in the previous 1950-72 time interval. A striking finding is that for the total economy the “early-to-late” productivity growth slowdown from 1972-95 to 2005-15 in the EU-10 was almost identical to the U.S. slowdown from 1950-72 to 2005-15. There is a very high EU-U.S. correlation in the magnitude of the early-to-late slowdown across industries. This supports our overall theme that the productivity growth slowdown from the early postwar years to the most recent decade was due to a retardation in technical change that affected the same industries by roughly the same magnitudes on both sides of the Atlantic. We emphasize the role of industries producing commodities rather than services as the main drivers of the U.S. post-1972 slowdown and post-1995 revival. We construct a new set of ICT-intensity indicators which provide a consistent verdict that ICT-intensive industries were responsible for all the post-1995 U.S. productivity growth revival but disagree whether ICT industries dominated the post-2005 slowdown. The analysis, in addition to highlighting the many dimensions of trans-Atlantic similarity across industries, isolates industry outliers that deviate from overall patterns.
- D2 - Production and Organizations
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy