Lagging Productivity Growth: Measurement, Technology, and Shock Effects

Abstract

One of the most important problems about which economists have professional knowledge is lagging productivity growth. After illustrating some significant developments this paper addresses three questions: (1) To what extent does R&D activity drive productivity growth, (2) how do alternative measures of productivity affect the conclusions and (3) how did the oil price shocks and the increased openness of the U.S. economy affect productivity growth? After removing the influence of the extremely dynamic computer industry, average manufacturing industry productivity in the U.S. throughout the 80s grew at a disappointing pace. And it didn’t improve in the most dynamic industries. But there is good news as well. First, part of the 1970s productivity slump is clearly attributable to the 1973–74 oil price shock. Second and more important, technological innovation does not appear to have lost its power in driving productivity growth forward. Indeed there is evidence of stronger and more consistent productivity effects from R&D investment during the 1980s, although the exact channels through which R&D enhances manufacturing sector productivity are left in doubt. Estimates of the role inter-industry technology flows play are sensitive to aggregation and the conventions used to construct the industry price deflators underlying productivity measures.