Does the United States Have a Productivity
Slowdown or a Measurement Problem?
David Byrne, John Fernald, and Marshall Reinsdorf*
January 16, 2017
* The views expressed here are our own and do not necessarily reflect the views of the Federal
Reserve Bank of San Francisco, the Board of Governors of the Federal Reserve System, the IMF,
or anyone else associated with these institutions
Innovation “feels” fast, but productivity growth is slow
Adjustments to growth in output per hour
Business sector, percentage points per year
Percentage points
4
3.5
3
published
2.5
2
1.5
1
0.5
0
-0.5
1978-1995
Source: BLS, Fernald (2014a), and authors' calculations.
1995-2004
2004-2014
Takeaway: No evidence mismeasurement has worsened
• It’s not a shift to slow-growth industries
– The slowdown was broadbased
• Missing as much or more growth in IT goods and services in
the 1995-2004 period
• Caveat: A lot of consumer gains are outside the market sector
Growing mismeasurement of IT growth isn’t the answer
Growing mismeasurement of IT growth isn’t the answer
Growing mismeasurement of IT growth isn’t the answer
Takeaway: No evidence mismeasurement has worsened
• It’s not a shift to slow-growth industries
– The slowdown was broadbased
• Missing as much or more growth in IT goods and services in
the 1995-2004 period
• Caveat: A lot of consumer gains are outside the market sector
Is it rise of poorly measured industries?
• BLS industry data on total factor productivity (TFP)
– 1987-2013, 60 industries
• Aggregate TFP growth is very close to a Tornquist index of
(share-weighted growth in) industry TFP
– I.e., Domar weighting
• Counterfactual: Hold the shares at their initial (1987) levels
It’s not the (steady) shift towards slow-growth industries
Counterfactual:
Weight industry TFP growth holding industry weights at 1987 levels
Rise and fall of IT, trade, and other well-measured industries
Rise and fall of IT, trade, and other well-measured industries
Rise and fall of IT, trade, and other well-measured industries
Rise and fall of IT, trade, and other well-measured industries
Where did IT go?
Recent work points to IT mismeasurement
• Cellular networks
– Innovations missed in communications equipment prices. (Byrne
and Corrado, 2015, 2016)
• Computers
– Slowdown exaggerated by offshoring and methodological
problems. (Byrne and Pinto, 2015)
• Microprocessors
– price trends distorted by use of list prices. (Byrne, Oliner and
Sichel, 2015)
• Specialized electronics (e.g., military and medical)
– Little measurement research. (Byrne, 2015)
• Software
– Only 1/3 has directly observed prices
Computer “weight” shifting to (mismeasured) import price
BEA and BLS Prices: PCs
Annual data
Percent
10
0
-10
-20
-30
BLS Producer
BLS Import
BEA NIPA
-40
-50
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
-60
Computer mismeasurement has worsened…
Computer and peripheral prices
Annual data
Percent change
5
0
-5
-10
-15
-20
-25
-30
NIPA
Alternative
-35
-40
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
-45
…but shrinking domestic production of computers/communicat.
Specialized equipment/software more speculative/judgmental
Non-NIPA intangibles growing fast in 1980s, 1990s
(Organizational capital, training, branding, and design)
Intangibles (Corrado and Jager, 2015)
Globalization, fracking, Internet access contribute to slowdown
“Free” digital services boost well-being but not GDP
• Benefits to consumers of free online services (Facebook, Google,
YouTube, …) are large
– Hard to bring much final output into business sector
• Welfare gains too small to offset effects of productivity
slowdown (e.g., Brynjolfsson and Oh, 2014)
– Plus, as Gordon (2016) reminds us, GDP has always missed
important welfare gains
Productivity paradox 2.0
“The things at which Google and its peers excel, from Internet
search to mobile software, are changing how we work, play and
communicate, yet have had little discernible macroeconomic
impact. …Transformative innovation really is happening on
the Internet. It’s just not happening elsewhere.”
Greg Ip, Wall Street Journal, August 12, 2015
Conclusions: Productivity paradox 2.0 remains: No
evidence mismeasurement has worsened
• Slowdown was broadbased, but mismeasurement narrative
typically covers narrow portion of economy
• Much still not known—a lot of research to be done!
– Improved measures of quality change
– Satellite accounts for non-market production and leisure
• Implication: Slow growth in potential output and real wages