Does the United States Have a Productivity Slowdown or a Measurement Problem

75 Pages Posted: 7 Mar 2016

See all articles by David M. Byrne

David M. Byrne

Board of Governors of the Federal Reserve System

John G. Fernald

Federal Reserve Bank of San Francisco

Marshall Reinsdorf

International Monetary Fund (IMF)

Date Written: 2016-03-04

Abstract

After 2004, measured growth in labor productivity and total-factor productivity (TFP) slowed. We find little evidence that the slowdown arises from growing mismeasurement of the gains from innovation in IT-related goods and services. First, mismeasurement of IT hardware is significant prior to the slowdown. Because the domestic production of these products has fallen, the quantitative effect on productivity was larger in the 1995-2004 period than since, despite mismeasurement worsening for some types of IT -- so our adjustments make the slowdown in labor productivity worse. The effect on TFP is more muted. Second, many of the tremendous consumer benefits from smartphones, Google searches, and Facebook are, conceptually, non-market: Consumers are more productive in using their nonmarket time to produce services they value. These benefits do not mean that market-sector production functions are shifting out more rapidly than measured, even if consumer welfare is rising. Still, gains in non-market production appear too small to compensate for the loss in overall wellbeing from slower market-sector productivity growth. Third, other measurement issues we can quantify (such as increasing globalization and fracking) are also quantitatively small relative to the slowdown. Finally, we suggest high-priority areas for future research.

Keywords: Information technology, Measurement, Non-market production, Prices, Productivity

Suggested Citation

Byrne, David M. and Fernald, John G. and Reinsdorf, Marshall, Does the United States Have a Productivity Slowdown or a Measurement Problem (2016-03-04). FEDS Working Paper No. 2016-17. Available at SSRN: https://ssrn.com/abstract=2742577 or http://dx.doi.org/10.17016/FEDS.2016.017

David M. Byrne (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

John G. Fernald

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-2135 (Phone)

HOME PAGE: http://www.frbsf.org/economics/economists/jfernald.html

Marshall Reinsdorf

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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