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Low Productivity: A Paradox Explained

Despite Technological Advances and an Increasingly Skilled Labor Force, US Productivity has Slowed

April 28th, 2016, New York, NY--In a research brief released today, Gregory Daco, Head of US Macroeconomics, Oxford Economics, outlined the following regarding US productivity:

  • Despite the recent raft of technological advances which should have improved corporate efficiency, and despite an increasingly skilled labor force, US productivity growth has slowed sharply since the early 2000s: a paradox.
  • While roughly 20% of the productivity slowdown can be attributed to measurement issues, the remaining 80% is “real”.
  • The slowdown can be attributed to a mixture of cyclical and structural factors. The highly cyclical nature of productivity will lead to some recovery in productivity growth in the coming quarters as employment gains slow in a maturing labor market.
  • Structurally, weak demand, a lack of focus on intangible investment, poor diffusion of innovations and skills mismatch are important factors behind the productivity sluggishness.
  • Looking across the sectors, average productivity growth in the services sector has been lower than in the manufacturing sector although top-performing services-sector firms outperform their manufacturing peers.
  • Overall, since many of the productivity headwinds have a structural root, we recommend structural reforms to avoid remaining trapped in a low-growth, low productivity trap.
  • Encouragingly, none of these factors are irreversible and an adequate mix of pro-growth policies, increased labor and product market flexibility and promotion of trade and investment flows would prevent these structural headwinds from becoming permanent.

Daco says, "A large part of the ongoing productivity slowdown is real with structural root. Encouragingly, none of these factors are irreversible and an adequate mix of pro-growth policies, increased labor and product market flexibility and promotion of trade and investment flows should prevent these structural headwinds from becoming permanent. More specifically, we recommend reducing barriers to entry in product markets to promote competition, innovation and diffusion thereof."

A slowdown in productivity that started at the turn of the century and was exacerbated during the Great Recession.

To receive the full research briefing, please contact Gregory Daco at +1 (646) 503-3055; Email: gregorydaco@oxfordeconomics.com.

About Oxford Economics:

Oxford Economics was founded in 1981 as a commercial venture with Oxford University’s business college to provide economic forecasting and modelling to UK companies and financial institutions expanding abroad. Since then, we have become one of the world’s foremost independent global advisory firms, providing reports, forecasts and analytical tools on 200 countries, 100 industrial sectors and over 3,000 cities. Our best-of-class global economic and industry models and analytical tools give us an unparalleled ability to forecast external market trends and assess their economic, social and business impact.

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