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Explaining the Post-2011 Fall-Off in Manufacturing Productivity Growth in the United States

Paper Session

Monday, Jan. 5, 2026 1:00 PM - 3:00 PM (EST)

Philadelphia Convention Center, 201-C
Hosted By: American Economic Association
  • Chair: Andrew Sharpe, Centre for the Study of Living Standards

Why Is Manufacturing Productivity Growth So Low?

Enghin Atalay
,
Federal Reserve Bank of Philadelphia
Ali Hortacsu
,
University of Chicago
Nicole Kimmel
,
University of Chicago
Chad Syverson
,
University of Chicago

Abstract

We examine the recent slow growth of manufacturing productivity. We document that a handful of industries producing computers and electronics accounts for nearly all of measured TFP growth since 1987 as well the slowdown since the late 2000s. We then argue that conventional industry accounts perennially understate U.S. manufacturing productivity growth. To show this, we compare consumer, producer, and import price indices. Beyond measuring different concepts, these indices vary in how comprehensively they account for quality improvements, especially for rapidly innovating goods. We interpret the gap between the consumer price index and the producer and import price indices as evidence of under-accounting for quality improvements. Using an input-output accounting framework, we estimate that these gaps imply an understatement of manufacturing TFP growth by 2.3 percentage points for durable goods manufacturing, 0.7 percentage points for nondurable goods manufacturing, but no difference for nonmanufacturing industries.

The Mysterious Disappearance of Productivity Growth in US Manufacturing: Was It the China Shock?

Robert Gordon
,
Northwestern University
Kenneth Ryu
,
Northwestern University

Abstract

Faster productivity growth in manufacturing than in the private business sector was once a reliable feature of the U.S. economy. During 1972-2009 manufacturing productivity growth was one percent faster than in the private sector (3.1 vs. 2.0 percent). But during 2009-24 its growth was a full 1.5 percent slower than in the private sector (-0.1 vs. 1.4 percent). This paper is among the first to explain this remarkable turnaround.

Labor productivity growth is divided between growth in capital deepening and total factor productivity (TFP), which in turn often is interpreted as measuring the pace of innovation. A ranking across 19 industries of the post-2009 TFP growth slowdown highlights electronic products as the top culprit. The paper develops case studies of the pace of innovation in this and other manufacturing industries.

But TFP explains only 40 percent of the slowdown. The other 60 percent is accounted for by the even greater slowdown in capital deepening. Manufacturing output rose at 3.1 percent annually from 1972 to 2001 but then its growth nearly vanished to a mere 0.4 percent annually from 2001 to 2024. Without output growth there was no incentive to invest, the capital stock became older and more obsolete, plants closed, and the benefits of modern technology embedded in new machinery were largely lost.

Why did output growth vanish after 2001? The timing coincides almost exactly with the 2001 entry of China into the WTO. The paper develops a 19-industry data base to study the relationship over selected intervals between the expansion of imports from China and other nations and declining growth in manufacturing output, capital, investment, and productivity. Far from stripping the U.S. only of its least productive industries, the “China shock” appears to have undermined the foundations.

Markups and the Manufacturing Productivity Slowdown

Benjamin Bridgman
,
Bureau of Economic Analysis

Abstract

This paper examines whether mismeasurement due to markups is responsible for the decline in U.S. manufacturing productivity growth. It estimates markups using a model to estimate the user cost of capital to split capital payments into regular returns and economic profit. I do not find that the slowdown is due to mismeasurement. Correcting for markups tends to strengthen the slowdown. Labor input growth has been faster than output growth. The markup correction increases the impact of labor changes. The results are consistent with the slowdown resulting from slower technical change in investment products.

The Productivity Paradox in US Manufacturing: A Firm- and Industry-Level Perspective

Jeremy Pearce
,
Federal Reserve Bank of New York
Danial Lashkari
,
Federal Reserve Bank of New York

Abstract

The past two decades have witnessed a slowdown in labor productivity, measured as value added per hour worked. This slowdown has been particularly stark in the manufacturing sector, which historically has been a leading sector in driving the productivity of the aggregate U.S. economy. Despite several recent studies, much remains to be uncovered about the nature of this slowdown. This paper utilizes microdata at the firm level to demonstrate the common trends across firms and industries in the manufacturing productivity slowdown. We further entertain various hypotheses for the slowdown that can explain this uniformity across firms and industries.

Discussant(s)
Bart van Ark
,
The Productivity Institute and University of Manchester
David M. Byrne
,
Federal Reserve Board
Stephen Tapp
,
Centre for the Study of Living Standards
Sabrina Wulff Pabilonia
,
Bureau of Labor Statistics
JEL Classifications
  • O4 - Economic Growth and Aggregate Productivity
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights