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Economic News, Data and Analysis

DeLong on Productivity Growth

Grab a sandwitch and read:
(Especially the handout)

Semi-Daily Journal
Growth Lunch Talk
I’m supposed to give a very informal talk about American productivity growth at the inaugural growth lunch tomorrow. Here is my handout.
Eighteen months ago I would have been pretty confident about what to say. (And, indeed, I said it.) I would have said that the information technology revolution had attained critical mass, and was boosting American prosperity through three channels:
1. Faster productivity growth meant that the labor market could deliver sustained wage increases no greater than the productivity-warranted rate of real wage growth at a lower unemployment rate, and thus that the infotech revoution had reduced the economy’s natural rate of unemployment–perhaps by as much as two percentage points.
2. Outstanding productivity growth in the making of infotech products was boosting economy-wide productivity growth by the rate of leading-sector productivity growth times the share of economy-wide total expenditure spent on infotech products.
3. Outstanding productivity growth in infotech boosts economy-wide productivity growth by a further important channel: cheap infotech capital goods raise the economy’s capital intensity and boost productivity growth by the rate of leading-sector productivity growth times the quotient of the infotech production-function share divided by labor’s production-function share.
But the past year and a half’s data have been really weird: extraordinary labor-productivity growth unaccompanied by capital deepening, an unprecedented employment-productivity pattern, plus evidence of a large shift away from the “cyclical employment” model. A lot of things are up for grabs right now…

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