Unproductive by Choice: Substitution and the Slowdown in Aggregate Productivity Growth in the United States
12 Pages Posted: 21 Jul 2019
Date Written: July 20, 2019
I propose a new decomposition of aggregate total factor productivity using a model where productivity is an index of unmeasured factors of production. The decomposition uses the conditional factor demand for the unmeasured factors. In this model, changes in the effective price of labor and capital can 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 if not for the declining growth rate of the effective price of labor and capital encouraging substitution away from productivity, productivity growth would be accelerating.
Keywords: Productivity, United States Productivity Growth, Aggregate Productivity, Endogenous Productivity
JEL Classification: E23, E22, O47
Suggested Citation: Suggested Citation