The Compositional Nature of Productivity Slowdown

The Institute of Economics will hold the next meeting of its Seminar Series on Tuesday, March 7, 2017: Simone Vannuccini, from the Friedrich-Schiller-Universität Jena, will present the paper The Compositional Nature of Productivity Slowdown.

Abstract:

A growing number of empirical studies identify a generalized slowdown in labor productivity (Syverson, 2016). This trend, coupled with evidence of decline in the pace of business dynamism of US firms (Decker et al., 2014) ignited a series of academic debates suggesting that secular stagnation (Teuling and Baldwin, 2014) or more simply just ‘mismeasurement’ problems (Syverson, 2016) may determine the observed trends. We posit that the composition of aggregate productivity matters. In a nutshell, we make the analysis of productivity growth slowdown more fine-grained shifting the focus to the industry level, assuming that the downward trend identified at the macroeconomic level emerges from the aggregation of diverse industry level productivity trends. We decompose the growth of labor productivity of Germany and United States using non-parametric decomposition techniques (Cantner and Krüger, 2008) in order to understand i) if the generalized productivity slowdown is pulled by the productivity dynamics of some specific industry and ii) what is the role played by structural change – namely by the reallocation of labor between industries. One of the possible explanations of the productivity slowdown besides mismeasurement issue is related to the technological (supply-side) domain. A generalized exhaustion of technological opportunities, one for example characterizing the transition between techno-economic paradigms, could indeed affect the pace of productivity growth. In this sense, the productivity slowdown could the caused by deep technological transformations. To investigate that, we complement our decomposition of aggregate productivity growth with an analysis of the trends of some proxy of innovative activities.