Prospects for a revival in U. S. productivity growth

Abstract

Abstract The growth rate of total-economy U.S. labor productivity during the eight-year period between 2010:Q3 and 2018:Q3 was only 0.53 percent, lower by a large margin than any other eight-year interval in U.S. postwar quarterly data. This paper divides the question of a possible revival in productivity growth into two questions. The first is the possibility of a procyclical response in the gap between actual and trend productivity growth, and the second is a revival in the productivity growth trend itself. An econometric study of the procyclical gap elasticity takes account of a smaller response in the data since the mid-1980s. Because there is no post-1985 procyclicality in the productivity gap, in simulations of our equation estimated through 2015 we find that projections of the coefficients accurately track the failure of productivity growth to exhibit any revival during the three quarters of 2018 during which output growth has accelerated. Lacking a procyclical revival of the productivity gap, the chance of a revival rests with the productivity growth trend itself. An equation that estimates the responsiveness of that trend to labor market tightness and to capital deepening yields our second conclusion that, based on forecasts of the future trajectory of the unemployment rate and the capital-labor ratio, a revival in trend productivity growth of 0.2 percentage points may occur during 2019-21.