Magazine article International Productivity Monitor

Editor's Overview

Magazine article International Productivity Monitor

Editor's Overview

Article excerpt

This 25th issue of the International Productivity Monitor contains revised versions of papers, as well as discussant comments, presented at a session on productivity organized by the Centre for the Study of Living Standards at the annual meeting of the American Economic Association in San Diego, California January 4-6, 2013. The first two papers focus on the productivity outlook for the United States, the third on the relationship between employment and productivity, and fourth on European productivity performance.

It is now well recognized that the productivity growth resurgence that took place in the United States after 1996 was fuelled by the information technology (IT) revolution. Going forward, the key question is whether this revolution will continue to boost productivity growth dramatically, or have a much more limited impact.

In the lead article, Martin N. Baily from the Brookings Institution and the McKinsey Global Institute, James Manyika from the McKinsey Global Institute and the Brookings Institution and Shalabh Gupta from McKinsey & Company provide an optimistic perspective on future U.S. productivity growth. Drawing on sector case studies done by the McKinsey Global Institute, they identify and document opportunities for productivity advance arising from specific technologies, such as robotics, 3D printing, big data, and the 'internet of things' that will drive future productivity growth in the manufacturing, energy, health care and life sciences, and infrastructure sectors. They forcefully reject the idea that growth opportunities have vanished, noting that necessity can be the mother of invention if pressures on budgets force business and governments to find ways to cut costs and raise efficiency.

In response to Baily, Maniyka and Gupta, Robert J. Gordon from Northwestern University presents a less optimistic view of future U.S. productivity growth. While recognizing that productivity growth in manufacturing has been and will likely continue to be rapid, he argues that the remaining 90 per cent of the economy will not see impressive productivity gains, which were fuelled by information technology, enjoyed in the 1996-2004 period. Rather he sees a continuation of the modest productivity gains experienced between 2004 and 2012. Gordon identifies a number of "headwinds" that will reduce future productivity and income growth. Once the negative impact of the demographic, education, inequality and debt headwinds are factored in, together with the likelihood that future inventions will be less important than those of the second Industrial Revolution, disposable income growth for the bottom 99 per cent of the population may be as low as 0.5 per cent per year or even lower.

In the second article, David M. Byrne from the Federal Reserve Board, Stephen D. Oliner from the American Enterprise Institute and the University of California at Los Angeles and Daniel E. Sichel from Wellesley College show through a detailed growth accounting exercise that since 2004 IT has continued to make a significant contribution to U.S. labour productivity growth--0.73 percentage points per year. While this is down from 1.50 points per year in 1995-2004, it is comparable to the 0.77 points of the 1974-1995 period. They develop a baseline projection of growth in trend labour productivity in the U.S. non-farm business sector of 1.8 per cent per year. While this would represent a period of subpar gains from a long-term historical perspective (though better than recent history), they see a reasonable prospect particularly given the ongoing advance in semiconductors - that the pace of labour productivity growth could revert to its long-run average of 2% per cent. …

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