Unproductive by Choice: Substitution and the Slowdown in Aggregate Productivity Growth in the United States

13 Pages Posted: 21 Jul 2019 Last revised: 31 Dec 2019

Date Written: December 31, 2019

Abstract

I propose a new decomposition of aggregate total factor productivity. I model productivity as an index of unmeasured factors of production, and decompose the conditional factor demand for this index. With this model of productivity, changes in the price of labor or capital cause substitution to or from productivity. I study whether such changes explain the slowdown in US productivity growth from 2005 to 2016. I find that the declining growth rate of the effective price of labor and capital encouraged substitution away from productivity. If labor and capital prices had remained constant, productivity growth would be accelerating.

Keywords: Productivity, United States Productivity Growth, Aggregate Productivity, Endogenous Productivity

JEL Classification: E23, E22, O47

Suggested Citation

Flynn, Zach, Unproductive by Choice: Substitution and the Slowdown in Aggregate Productivity Growth in the United States (December 31, 2019). Available at SSRN: https://ssrn.com/abstract=3368575 or http://dx.doi.org/10.2139/ssrn.3368575

Zach Flynn (Contact Author)

Afiniti ( email )

1701 Pennsylvania Ave
Washington, DC 20006
United States

HOME PAGE: http://zflynn.com

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