Working Paper: NBER ID: w20248
Authors: John Fernald
Abstract: U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules out explanations that focus on disruptions during or since the recession, and industry and state data rule out "bubble economy" stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about ¾ of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.
Keywords: No keywords provided
JEL Codes: E23; E32; O41; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| IT investment (G31) | productivity growth (O49) |
| productivity slowdown (O49) | narrower output gap (E23) |
| pre-existing trend in productivity growth (O49) | productivity slowdown (O49) |
| IT-related factors (L86) | productivity slowdown (O49) |
| housing market dynamics (R31) | productivity slowdown (O49) |
| recession (E32) | productivity slowdown (O49) |