Productivity Slowdown Research Articles

Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown

A large literature documents declining measures of business dynamism including high-growth young firm activity and job reallocation. A distinct literature describes a slowdown in the pace of aggregate labor productivity growth. We relate these patterns by studying changes in productivity growth from the late 1990s to the mid 2000s using firm-level data. We find that diminished allocative efficiency gains can account for the productivity slowdown in a manner that interacts with the within-firm productivity growth distribution. The evidence suggests that the decline in dynamism is reason for concern and sheds light on debates about the causes of slowing productivity growth.

The Global Productivity Slowdown: Diagnosis, Causes and Remedies

This paper addresses the long-term slowdown in labour productivity for a panel of 25 countries. First, we look at productivity shifts and trends based on structural break tests and modern filtering techniques. The productivity slowdown is evident in almost all countries we investigate. Second, we deepen the analysis by decomposing labour productivity growth. Third, we use dynamic models to test for Granger causality in the trends and find that there is strong evidence that a slow GDP growth trend causes the subsequent productivity trend. We conclude that the productivity slowdown is a global phenomenon and should therefore be tackled at the international level.

Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown

Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown

The Canadian Productivity Stagnation, 2002-2014

Total Factor Productivity (TFP) growth in Canada between 2002 and 2014 has been only 0.16% per year. Although many developed countries have experienced a productivity slowdown since the beginning of the century, this figure is still substantially smaller than that of the U.S. We perform multiple counterfactual exercises to show that this difference in TFP growth cannot be accounted for by several compositional effects and/or mismeasurements of factors of production. We identify two key sectors (Mining and Manufacturing) that drive all of the TFP growth difference with the U.S. Despite the lack of TFP growth, Canada has experienced sustained income growth due to a prolonged period of appreciation of the terms of trade (while terms of trade in the U.S. have deteriorated), making real income in the two countries grow at similar rates.

Financial Frictions and the Great Productivity Slowdown

We study the role of financial frictions in explaining the sharp and persistent productivity growth slowdown in advanced economies after the 2008 global financial crisis. Using a rich cross-country, firm-level data set and exploiting quasi-experimental variation in firm-level exposure to the crisis, we find that the combination of pre-existing firm-level financial fragilities and tightening credit conditions made an important contribution to the post-crisis productivity slowdown. Specifically: (i) firms that entered the crisis with weaker balance sheets experienced decline in total factor productivity growth relative to their less vulnerable counterparts after the crisis; (ii) this decline was larger for firms located in countries where credit conditions tightened more; (iii) financially fragile firms cut back on intangible capital investment compared to more resilient firms, which is one plausible way through which financial frictions undermined productivity. All of these effects are highly persistent and quantitatively large—possibly accounting on average for about a third of the post-crisis slowdown in within-firm total factor productivity growth. Furthermore, our results are not driven by more vulnerable firms being less productive or having experienced slower productivity growth before the crisis, or differing from less vulnerable firms along other dimensions.

The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration

We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation a la Ben Porath (1967) and capital-skill complementarity a la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early postwar period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the U.S. labor share.

Financial Frictions and the Great Productivity Slowdown

We study the role of financial frictions in explaining the sharp and persistent productivity growthslowdown in advanced economies after the 2008 global financial crisis. Using a rich cross-country,firm-level data set and exploiting quasi-experimental variation in firm-level exposure to the crisis,we find that the combination of pre-existing firm-level financial fragilities and tightening creditconditions made an important contribution to the post-crisis productivity slowdown. Specifically:(i) firms that entered the crisis with weaker balance sheets experienced decline in total factorproductivity growth relative to their less vulnerable counterparts after the crisis; (ii) this declinewas larger for firms located in countries where credit conditions tightened more; (iii) financiallyfragile firms cut back on intangible capital investment compared to more resilient firms, which isone plausible way through which financial frictions undermined productivity. All of these effectsare highly persistent and quantitatively large-possibly accounting on average for about a third ofthe post-crisis slowdown in within-firm total factor productivity growth. Furthermore, our resultsare not driven by more vulnerable firms being less productive or having experienced slowerproductivity growth before the crisis, or differing from less vulnerable firms along otherdimensions.

Gone with the Headwinds: Global Productivity

Productivity growth—the key driver of living standards—fell sharply following the global financial crisis and has remained sluggish since, adding to a slowdown already in train before. Building on new research, this note finds that the productivity slowdown reflects both crisis legacies and structural headwinds. In advanced economies, the global financial crisis has led to “productivity hysteresis”—persistent productivity losses from a seemingly temporary shock. Behind this are balance sheet vulnerabilities, protracted weak demand and elevated uncertainty, which jointly triggered an adverse feedback loop of weak investment, weak productivity and bleak income prospects. Structural headwinds—already blowing before the crisis—include a waning ICT boom and slowing technology diffusion, partly reflecting an aging workforce, slowing global trade and weaker human capital accumulation. Reviving productivity growth requires addressing remaining crisis legacies in the short run while pressing ahead with structural reforms to tackle longer-term headwinds.

Productivity slowdown and misallocation in the post-recession: What prevents recovery?

This study explores the effects of the 2008 global economic crisis on the labor allocation and productivity in Luxembourg. The analysis is based on firm-level data from manufacturing and non-financial service sectors and finds a dramatic productivity slowdown after 2008. The study reveals that the cleansing effect of recession did not function effectively which would otherwise improve the efficiency in the labor allocation and counterbalance the productivity slowdown. The firm entry and job creation rates are lower in the post-crisis period, but the job destruction is not significantly altered by the crisis. The findings call attention for the strict employment protection legislation that possibly plays a role in preventing reallocation towards more efficient establishments. Relaxing the employment protection legislation simultaneously with facilitating the entry and growth of young firms is expected to promote creative destruction, improve allocative efficiency and speed up the post-crisis recovery.

Determinants of Labour Productivity in Malta: Evidence from a Firm-Level Survey

IntroductionThe Maltese economy has been one of the best performing members of the euro area after the global financial crisis. Growth has been job-rich with the increase in employment after the crisis being four times higher than that achieved in the decade before the crisis. The resilience of the Maltese economy is attributed to a more diversified economic base, which since around EU membership in 2004 has gradually shifted from traditional activities towards higher-value added ones, mostly in services.Labour productivity, however, has been sluggish after the crisis, underperforming most other European economies (Micallef, 2015). In addition, the absence of sectoral price deflators renders an in-depth analysis of sectoral productivity particularly challenging at a time when it is being increasingly recognised that economy-wide measures of productivity have to be complemented by sectoral and, if available, firm-level developments (Di Mauro and Ronchi, 2015).The changing structure of the Maltese economy further complicates the analysis of productivity. The main sectors generating growth since EU membership have similar value added multipliers compared to those in the previous decade but much higher employment multipliers. Grech (2015) argues that the expansion of these labour-intensive services industries has played a key role in the slowdown of Malta's apparent productivity in recent years and the associated rise in unit labour costs, despite moderate increases in wage growth. These trends complicate the assessment of competitiveness using aggregate measures of unit labour costs.This paper adds to the empirical literature on productivity in Malta by exploiting information from a unique firm-level survey carried out by the Central Bank of Malta in 2014 as part of the Wage Dynamics Network (WDN) project. Such a survey provides rich evidence, directly from firms, with a detailed breakdown by sector and size classes that are not available from existing statistics. Using this dataset, developments in labour productivity compared to costs are investigated within an empirical multivariate framework that controls for the firm's characteristics (such as size and sector of activity), production technology, the characteristics of the workforce, restructuring efforts, exposure to foreign markets, as well as the nature of shocks hitting the firm. To the best of my knowledge, this is the first study that looks at the determinants of labour productivity in Malta by using survey information to fill the gap imposed by severe data limitations, both at a micro and macro level.The main results are summarized as follows. Labour productivity is more likely to be lower in firms with a higher share of labour in total costs, thus confirming that the significant shift towards more labour-intensive services observed in recent years is likely to be an important driver behind the slowdown in productivity. Firms implementing changes to their production structure by out-sourcing part of their operations are more likely to experience an improvement in productivity. The characteristics of the workforce, such as a higher share of skilled workers and workforce stability, are positively related to productivity. On the contrary, credit constrained firms are less likely to experience an improvement in productivity. Adverse demand shocks are negatively related to labour productivity, possibly due to labour hoarding, although this result is not robust across the various model specifications.The rest of the paper is organised as follows. Section 2 provides a brief review of the literature on the main determinants of productivity. Section 3 gives an overview of the WDN survey. Section 4 looks at the survey results on productivity, focusing in particular on the empirical model. A discussion of the results and some policy recommendations are found in section 5. Section 6 concludes.1.Literature reviewThere is a broad consensus among economists that productivity plays a key role in economic success and is the main driver of per capita growth in the long-run (Krugman, 1994; Hall and Jones, 1999). …

Home productivity

This paper documents novel facts about the household sector to guide macroeconomic modeling, including the first estimates of aggregate U.S. home productivity. I derive the theoretically correct prices required to impute home production value added and productivity and apply this method to estimate annual U.S. home production accounts from 1929 to 2010. Both labor productivity and technical change grew steadily after World War Two, but slowed after the late-1970s. Capital intensity increased in the late-1970s due to increased consumer durables holdings, suggesting that the home production function must allow for more substitutability between capital and labor than Cobb–Douglas. Including home production significantly reduces the shift from goods to services production relative to published GDP. The productivity slowdown coincides with a shift to market services, suggesting that it was slower – not faster – home productivity that encouraged shifting production out of the home.

Edmund Phelps on Productivity Slowdown: Limits to Utilitarian Economics

Nobel Laureate economist Edmund Phelps blames the increasing marginalisation of a large number of workers in unstimulating jobs on low wages as a contributory factor to productivity slowdown in the West. He blames utilitarian economics because it cannot accommodate the idea of social inclusion. In our view, the problem is best understood as a manifestation of the poverty of the theory of prices governing the allocation of resources.

EMPLOYMENT PROTECTION, TECHNOLOGY CHOICE, AND WORKER ALLOCATION

We show empirically that high‐risk sectors, which contribute strongly to aggregate productivity growth, are relatively small and have relatively low productivity growth in countries with strict employment protection legislation (EPL). To understand these findings, we develop a two‐sector matching model where firms endogenously choose between a safe technology and a risky technology. For firms that have chosen the risky technology, EPL raises the costs of shedding workers in case they receive a low productivity draw. According to our calibrated model, high‐EPL countries benefit less from the arrival of new risky technologies than low‐EPL countries. Parameters estimated through reduced‐form regressions of employment and productivity on exit costs, riskiness, and in particular their interaction are qualitatively similar for actual cross‐country data and simulated model data. Our model is consistent with the slowdown in productivity in the European Union relative to the United States since the mid‐1990s.

Environmental policies and productivity growth: Evidence across industries and firms

This paper investigates the impact of changes in environmental policy stringency on industry- and firm-level productivity growth in a panel of OECD countries. To test the strong version of the Porter Hypothesis (PH), we extend a neo-Schumpeterian productivity model to allow for effects of environmental policies. We use a new environmental policy stringency (EPS) index and let the effect of countries׳ environmental policies vary with the pollution intensity of the industry and with the countries’ and firms’ technological advancement. A tightening of environmental policy is associated with a short-term increase in industry-level productivity growth in the most technologically-advanced countries. This effect diminishes with the distance to the global productivity frontier, eventually becoming insignificant. For the average firm, no evidence of PH is found. However, the most productive firms see a temporary boost in productivity growth, while the less productive ones experience a productivity slowdown.

Does Home Production Drive Structural Transformation?

Using new home production data for the United States, we estimate a model of structural transformation with a home production sector, allowing for both non-homotheticity of preferences and differential productivity growth in each sector. We report two main findings. First, the estimation results show that home services have a lower income elasticity than market services. Second, the slowdown in home labor productivity, which started in the late 70s, is a key determinant of the rise of market services. Our counterfactual experiment shows that, without the slowdown, the share of market services would have been lower by 7.5 percent in 2010. (JEL D13, J24, L16)

Does the United States have a Productivity Slowdown or a Measurement Problem?

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 information-technology (IT)-related goods and services. First, mismeasurement of IT hardware is significant prior to the slowdown and because the domestic production of these products has fallen, the quantitative effect on productivity is larger in the 1995-2004 period than since, despite mismeasurement worsening for some types of IT. Hence, 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 raise consumer well-being but do not imply that market-sector production functions are shifting out more rapidly than measured. Moreover, estimated gains in non-market production are too small to compensate for the loss in overall well-being from slower market-sector productivity growth. In addition to IT, other measurement issues we can quantify (such as increasing globalization and fracking) are also quantitatively small relative to the slowdown.

The pre-Great Recession slowdown in productivity

In the years since the Great Recession, many observers have highlighted the slow pace of productivity growth around the world. For the United States and Europe, we highlight that this slow pace began prior to the Great Recession. The timing thus suggests that it is important to consider factors other than just the deep crisis itself or policy changes since the crisis. For the United States, at the frontier of knowledge, there was a burst of innovation and reallocation related to the production and use of information technology in the second half of the 1990s and the early 2000s. That burst ran its course prior to the Great Recession. Continental European economies were falling back relative to that frontier at varying rates since the mid-1990s. We provide VAR and panel-data evidence that changes in real interest rates have influenced productivity dynamics in this period. In particular, the sharp decline in real interest rates that took place in Italy and Spain seem to have triggered unfavorable resource reallocations that were large enough to reduce the level of total factor productivity, consistent with recent theories and firm-level evidence.

The Pre-Great Recession Slowdown in Productivity

In the years since the Great Recession, many observers have highlighted the slow pace of productivity growth around the world. For the United States and Europe, we highlight that this slow pace began prior to the Great Recession. The timing thus suggests that it is important to consider factors other than just the deep crisis itself or policy changes since the crisis. For the United States, at the frontier of knowledge, there was a burst of innovation and reallocation related to the production and use of information technology in the second half of the 1990s and the early 2000s. That burst ran its course prior to the Great Recession. Continental European economies were falling back relative to that frontier at varying rates since the mid-1990s. We provide VAR and panel-data evidence that changes in real interest rates have influenced productivity dynamics in this period. In particular, the sharp decline in real interest rates that took place in Italy and Spain seem to have triggered unfavorable resource reallocations that were large enough to reduce the level of total factor productivity, consistent with recent theories and firm-level evidence.

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

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.

Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence

We examine the hypothesis that the slowdown in productivity following the Great Recession was in significant part an endogenous response to the contraction in demand that induced the downturn. We motivate, develop, and estimate a model with an endogenous TFP mechanism that allows for costly development and adoption of technologies. Our main finding is that a significant fraction of the post-Great Recession fall in productivity was an endogenous phenomenon, suggesting that demand factors played an important role in the postcrisis slowdown of capacity growth. More generally, we provide insight into why recoveries from financial crises may be so slow. (JEL E23, E24, E32, E44, G01)