Slowdown In Productivity Growth Research Articles

Recent trends in firm‐level total factor productivity in the UK: new measures, new puzzles

AbstractUnderstanding the poor productivity performance of the UK economy since the financial crisis is complicated by the well‐known challenges in estimating total factor productivity (TFP) using only revenue data. We develop a structural framework to infer quality‐adjusted TFP from an estimated firm‐level revenue function. We use microdata for two sectors previously identified as being significant contributors to the UK's productivity growth slowdown—manufacturing and ICT—from 2008 to 2019. The revenue function is estimated using the Blundell–Bond System GMM estimator. We also use an alternative cost‐shares approach to identifying and measuring TFP. For both methods, we find an overall fall in TFP levels in manufacturing and a rise in ICT. We find a striking decline of between 13% and 18% in the level of within‐firm manufacturing TFP, and of between 11% and 16% in ICT, although with reallocation effects differing between the two sectors. The finding of declining within‐firm TFP is robust, although the magnitude varies between methods. We discuss a possible explanation for this extended UK productivity puzzle based on the relative underperformance of UK firms in international markets.

Productivity measurement: Reassessing the production function from micro to macro

AbstractThe productivity growth slowdown in advanced economies during the early decades of the 21st century has led to renewed interest in economic measurement. Measured productivity growth has largely evaporated, yet in many ways, the average person is better off than at any time in history and technological advance is ever evident. Are we simply, or at least in part, mismeasuring productivity change? More fundamentally, are we measuring an outdated or otherwise less relevant economic concept? What should and can we measure in the interest of developing evidence‐based policy solutions to support productivity growth? This paper reviews some of the recent advances in economic measurement and points to an expanded productivity measurement research agenda arising from these questions.

Market Power and Innovation in the Intangible Economy

This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism, and the rise of market power. Using a quantitative framework, I show that the rise of intangible inputs, such as software, can explain these trends. Intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage, in turn deterring other firms from entering. I structurally estimate the model on French and US micro data. After initially boosting productivity, the rise of intangibles causes a decline in productivity growth, consistent with the empirical trends observed since the mid-1990s. (JEL D22, D24, E23, L11, O31, O47)

Are pro‐productivity policies fit for purpose?

AbstractIn this paper we examine productivity trends, drivers of productivity growth and pro‐productivity policies across the G‐20 economies since 1970. While we find distinctly different productivity growth dynamics between G‐20 economies and over time, one common observation is a widely shared slowdown in labour productivity growth since the 2010s underpinned by lower (or even negative) total factor productivity growth. Moreover, the growth in capital per worker hour has also begun to level off. We develop a typology of pro‐productivity policies and argue that policies for investment and technological change need strengthening to support a revival of productivity growth. Such policies should include a balanced approach to stronger technological progress and more rapid diffusion; a strengthening of investment, especially in intangibles and public services; and greater attention for human capital. We also argue for stronger institutions and capabilities that allow for dynamic learning about pro‐productivity policies across countries and over time.

Intangible capital and productivity divergence

Understanding the causes of the slowdown in aggregate productivity growth is key to maintaining the competitiveness of advanced economies and ensuring long‐term economic prosperity. This paper provides evidence that investment in intangible capital, despite having a positive effect on productivity at the micro level, is a driver of the weak productivity performance at the aggregate level as it amplifies the divergence between a group of “frontier” firms and the rest of the economy. Using firm‐level data, we find that the effect of intangible capital on productivity is heterogeneous across firms within industries. Documenting the existence of divergence in productivity growth between top intangible users and the rest of firms at the industry level, we find that industries where this gap is larger are also those industries where the heterogeneity in the effect of intangible capital is highest and where average productivity growth was lower. Thus, the evidence supports the view that the use of intangible capital plays a role in explaining weak aggregate productivity growth, by intensifying differences between firms.

Y-REALITY AS A SHIFT FROM "GREAT MODERATION" TO "GLOBAL CHAOS": ASSESSMENT OF GLOBAL MACROECONOMIC AND CRISIS PROCESSES THROUGH THE PRISM OF GENERATIONAL DIALOGUE AND DEVELOPMENT ISSUES

The purpose of the article is to determine the features of the development of the world economy during the formation of the predominant role of Gen Y in the structure of the population, Y-reality is defined as a common historical context for generations that affects their economic behavior and predetermines challenges that limit the choice of consumption patterns, savings and other economic activity for Gen Y(millennial), the maturation process occurred during the Great moderation period, which lasted from mid-1980 until at least 2007. Great moderation was characterized by a low level of inflation, stable economic growth, the end of the "era" of uncertainty, an increase in the willingness to take risks, an increase in the prices of financial assets, and a decrease in the volatility of business cycle fluctuations in developed countries compared to previous decades. The period of Great Moderation ended with the onset of the global financial crisis of 2008–2009. The "New Norm" of the world economy or "Global Chaos" since 2008 has been characterized by eight trends: deterioration of US-China relations; aggravation of political fragmentation within the EU; further accumulation of debts and injection of artificial liquidity not into the financial, but into the real sector; inflation; increasing tax pressure on the rich as one of the tools to combat economic inequality; actualization of environmental topics, in particular, the climate issue with the prospect of introducing a carbon tax; technological revolution and technological confrontation, which will be determined by the coexistence of different technological standards; intensifying intergenerational competition with Gen Y predominating by 2030, which will set the global agenda and ultimately the demand for policy and how it is implemented. It is noted that in the conditions of the formation of the information and digital economy, Gen Y revised their approaches to employment, which is accompanied by the transformation of Gen Y human capital into network human capital. Y-reality is characterized by: the transition from efficiency to sustainability in strategic planning, which will affect the slowdown in productivity growth; increased demand from market agents for government participation; development of public-private partnership; increased deglobalization, which will accelerate the decline in productivity; rising unemployment; decrease in consumption; decrease in savings; an increase in debt; declining coordination of international economic policy. The impact of the coronavirus crisis on the economy (coronanomics) not only provokes a temporary drop in production, but also changes the basis for the functioning of the world economy, laying the foundations for sustainable economic imbalances. A specific feature of Y-reality is recognized as a change in approaches to monetary policy (quantitative easing and hedge money), as well as a human-centric quantitative easing known as "basic guaranteed income". Y-reality will be characterized by the search for new indicators of well-being and economic growth, in particular, which will lead to the realization of a new purpose of economic systems and the formation of a "new norm" of rational economic behavior, taking into account the impact of human activities on the environment. The slowdown in economic growth under Y-reality conditions becomes sustainable, it is objectively determined by the presence of numerous imbalances, and therefore it should be treated as a given. "Global disorder" came to mean not only the existing state of affairs and contradictory trends, but also the desired state, transforming the meaningful content of the concept of "crisis", giving it the connotation of a stage of the cycle, which can give impetus to development. The acronyms SPOD, VUCA and BANI were considered, which characterized the transformational processes in the modern economic system and the formation of Y-reality.

Structural Change within the Services Sector and the Future of Cost Disease

Abstract In his seminal work, Baumol observed that developed economies suffer from cost disease, i.e., aggregate productivity growth falls because structural change reallocates production to services with low productivity growth. We document that cost disease importantly contributed to the productivity growth slowdown in the postwar U.S. To assess how severe cost disease may become, we build a model of structural change among the goods sector and broad services sectors. Calibrating the model to the postwar U.S. implies that broad categories of services are substitutes and the services with low productivity growth do not take over production. Simulating the calibrated model forward implies that future cost disease will be less severe than the past one.

Fifty years on: what the Bretton Woods System can teach us about global macroeconomic policy-making

AbstractThis paper first describes the Bretton Woods system: its origin, what it was meant to achieve, and why it collapsed. We then describe the emergence of the global non-system in which inflation targeting has replaced full-employment Keynesianism and floating exchange rates have replaced the Bretton Woods set-up of fixed but adjustable exchange rates. We describe how the Bretton Woods system set about achieving the three objectives laid down for a well-functioning international economic system by John Maynard Keynes: full employment without inflation, sustainable current account balances between countries, and a sustainable flow of international financial capital—on the understanding that an open trading regime is also fostered. Because the global non-system is now very different from the Bretton Woods system, Keynes’s objectives now need to be achieved in a very different manner. Looking forward, this non-system faces a number of longer-term challenges. Important adjustment issues will arise in relation to the global demographic transition; the potential long-term slowdown in productivity growth; and the rise in investment in renewable sources of energy which will be necessary to help ensure that the world is able to move towards zero emissions of carbon by 2050. We also discuss important policy issues in relation to the flows of international capital to emerging market economies, and the likely need for a sovereign debt reconstruction mechanism. We then go on to consider two significant structural changes to the world—the emergence of the European Monetary Union and the rise of China. A final section of the paper considers the importance of leadership in this global non-system.

Longer-term structural transitions and short-term macroeconomic adjustment: quantitative implications for the global financial system

AbstractThis paper provides quantitative modelling of the effect of three longer-term global transitions: the global demographic transition involving a marked reduction in population growth; a long-term slowdown in productivity growth which may continue, or may conceivably be reversed; and the disruption in the global economy due to increasing climate shocks and the implementation of climate policies that will be needed to reach net-zero emissions by 2050. We study the global investment needs to which these transitions will lead. We demonstrate that these investment needs will be both asymmetric across countries and over time. This asymmetry will lead to potentially large changes in trade flows and significant financial capital flows across national borders, and also to substantial real exchange changes and interest rate movements. The resulting large movements in international capital flows will have significant implications for the global financial system, which we demonstrate at the country and regional level.

Testing R&D‐Based Endogenous Growth Models*

AbstractThis study examines US productivity growth through the lens of R&D‐based growth models. A general R&D‐based model, nesting different model varieties, is developed. These varieties are tested using a novel cointegrating relationship and US data for the period 1953–2018. The results provide evidence against the widely used fully endogenous variety and support for other varieties including the semi‐endogenous variety. Further, the results are systematically consistent with the presence of fishing‐out effects in knowledge production, implying that productivity‐enhancing innovations become increasingly harder to achieve as technologies become more advanced. Forecasts suggest that the US productivity growth slowdown continues over the coming decades.

The long-term effects of loan guarantees on SME performance

We estimate the treatment effect of guaranteed loans on the growth of a large sample of French small and medium-sized enterprises (SMEs). The nature of our sample allows us to estimate the treatment effect up to 10 years after the treatment and to consider several performance measures and moderating factors. Our findings indicate that beneficiaries of guaranteed loans experience significantly higher growth in sales, employment, and total assets than otherwise similar companies. The effects are long lasting, do not entail a slowdown in productivity growth, are mostly driven by organic growth rather than by external acquisitions, and are larger in firms that are typically more financially constrained (young or small). Guaranteed-loan beneficiaries are also more likely to survive than non-beneficiaries. Our results are consistent across different identification strategies (matching, difference-in-differences, instrumental variable estimation) and control group choices.

Diagnosing the UK productivity slowdown: which sectors matter and why?

AbstractThis paper explores the slowdown in labour productivity growth in the UK and other advanced economies by decomposing its growth into contributions from different sectors of the economy, looking at both within‐industry productivity growth and labour reallocation between sectors. We find that the within‐industry contribution is the main source of the slowdown. Comparing trends pre‐ and post‐2008, the aggregate productivity slowdown can be attributed largely to the manufacturing sector and the information and communication (ICT) sector. Disaggregating further, the UK productivity growth slowdown can be attributed mainly to transport equipment and pharmaceuticals within manufacturing, and computer software and telecommunications within ICT. Strikingly, these are advanced, high value‐added sectors considered to be strengths of the UK economy. Looking across other advanced economies, our results confirm that manufacturing and ICT sectors are the main drivers of the slowdown, to differing degrees. Part of the explanation for the slowdown in in these sectors may relate to the underlying question of how to construct deflators for a modern economy when technological and structural changes are leading to large relative price shifts. The structure and supply chains of the key slowdown sectors also merit further investigation.

Product Market Competition and its Implications for the Australian Economy*

This paper documents firm mark‐ups and competition in Australia, and their impact on productivity, using administrative data. I find that mark‐ups increased by around 5 per cent since the mid 2000s, less than previously documented for Australia and slightly less than documented for the average advanced economy. While part appears to reflect technological change, part appears to reflect an increase in market power. This increase appears to explain part of the slowdown in productivity growth observed in Australia over the past decade, by slowing the efficient reallocation of resources from low productivity to high productivity firms.

New and old dual economy

This paper aims to provide a possible explanation for the strange reoccurrence of the dual economy in developed countries. The dual economy is understood as consisting mainly of two sectors that differ in productivity, salaries, and related characteristics. It was hypothesized there is a relationship between secular stagnation, the slowdown in productivity growth, stagnation in wages, and the dual economy’s reoccurrence. In explaining this relationship, technological progress and the process of globalization, which have been prevalent in recent decades, play a crucial role. It is concluded that the era of the new dual economy and the productivity paradox represents a particular phase of economic growth. Since the phenomenon of the reoccurrence of the dual economy in developed countries has been noticed and studied only recently, further research is needed, focusing on the empirical studies.

Slowing of World Economy Growth: Analysis of Key Reasons

The article is devoted to the analysis of the key reasons for the slowdown in the global economy. According to the analysis, the slowdown in the global economy is caused by the following seven key reasons: trade wars and the aggravation of trade relations in the international economic market; global instability and technological uncertainty; risks of increased financial uncertainty; the impossibility on the part of some countries to overcome the consequences of the global crisis and the sanctions policy of the West; reformatting of economic activity in a political manner; wave of debt accumulation in developing countries; slowdown in labor productivity growth. The authors conclude that the global economic slowdown trend has a long-term perspective.

The UK Productivity “Puzzle” in an International Comparative Perspective

The UK’s slow productivity growth since 2007 has been referred to as a “puzzle”, as if it were a particularly UK-specific challenge. In this paper, we highlight how the United States and northern Europe experienced very similar slowdowns. The common slowdown in productivity growth was a slowdown in total factor productivity (TFP) growth; we find little evidence that capital deepening was an important independent factor. From a conditional-convergence perspective, most of the UK slowdown follows from the slowdown at the U.S. frontier. From the mid-1980s to 2007, the UK’s relative productivity level moved closer to the level of the U.S. and northern Europe, driven by essentially complete convergence in market services TFP. In contrast, manufacturing lost ground relative to the U.S. frontier prior to 2007, and remains far below the frontier. The relative ground lost after 2007 is modest—cumulating to about 4 percentage points—and is largely attributable to somewhat unfavorable industry weights and industry-specific issues in mining, rather than a systematic UK competitiveness problem.

Population aging, government policy and the postwar Japanese economy

This paper analyzes the Postwar Japanese economy with a parsimonious neoclassical growth model that incorporates the demographic transition in Japan. We find that i) the increase in the aged population share can account for most of the decline in employment and reduced output by 8%, ii) workweek shortening policy led to a 20% reduction in output from its potential level by reducing hours worked over the 1988-1994 period, iii) the rise in labor tax led to an 11% reduction in output from its potential level by discouraging hours worked, iv) the shift in the composition of government spending may have caused a slowdown in productivity growth and hence a reduction in the potential output level itself.

Acceleration of Labour Cost Along with Deceleration of Productivity: How the Slovak Manufacturing Lost the Advantage of Low Unit Labour Cost

Abstract The recent development in the Slovak economy erased a significant competitive advantage of manufacturing – low labour cost. The paper analyses the driving factors of rising unit labour costs in the manufacturing sector. The paper aims to explain why the unexpectedly rapid loss of traditional competitive advantage took place in the group of V4 countries and why this phenomenon was particularly pronounced in Slovakia. The paper identifies the driving factors that caused a strong increase in labour costs in addition to factors that also caused a slowdown in productivity growth. The decomposition of ULC dynamics has shown that the primary problem in the case of Slovakia is a very significant slowdown in labour productivity growth. Especially, from a marginal perspective, the components of gross value added developed strongly in favour of increasing compensations of employees. The decrease in the working-age population represented a significant driving force of increasing labour cost (wages) along with a halt in productivity growth caused by relatively low investment rate and absence of convergence in capital-to-labour ratio. Such development was identified in all V4 countries; however, the least favourable trend took place in Slovakia.

Population Ageing, Productivity and Technological Change in Asia

Demographic and technological changes are two megatrends set to transform labour markets around the world. These shifts are already under way and are expected to accelerate, particularly in East and Southeast Asia, which is home to the world's oldest and fastest-ageing societies and a region with an enviable pace of economic development. Yet for some countries, demographic ageing is coinciding with a slowdown in productivity and economic growth. While each of these phenomena has been extensively researched, the study of the interactions between them is often incidental and rarely carried out in the Asian setting. This article explores the plausible channels of these interactions and assembles evidence of links between age and productivity at the individual, firm and country levels, drawn from both Asian and global settings. Findings have shown that there are many knowledge gaps, both in data and modelling, which need to be addressed to inform the major policy interventions required to successfully manage these transitions.

The productivity growth slowdown and Kaldor’s growth facts

The productivity growth slowdown that started in the 1970s presents a challenge to Kaldor’s growth facts and the one-sector growth model. We ask: What natural modification of the growth model can generate a prolonged productivity growth slowdown? We show that the two-sector version with separate consumption and investment sectors has a balanced growth path equilibrium along which productivity growth slows down if two conditions hold: real GDP is measured with the Fisher index; productivity growth in the consumption sector slows down. We also show that real GDP measured with the Fisher index is a welfare measure in the two-sector version.