Global Macro Service > Research Briefings > United States

Low productivity: A paradox explained

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.

To read the full briefing please
If you are not a subscriber, request a free trial of our Global Macro Service by filling out the form below