Lower responsiveness to change is part of America’s productivity problem

by on January 26, 2018 at 12:16 am in Data Source, Economics | Permalink

Using several novel empirical facts from business microdata, we infer that the pervasive post-2000 decline in reallocation reflects weaker responsiveness in a manner consistent with rising adjustment frictions and not lower dispersion of shocks. The within-industry dispersion of TFP and output per worker has risen, while the marginal responsiveness of employment growth to business-level productivity has weakened. The responsiveness in the post-2000 period for young firms in the high-tech sector is only about half (in manufacturing) to two thirds (economy wide) of the peak in the 1990s. Counterfactuals show that weakening productivity responsiveness since 2000 accounts for a significant drag on aggregate productivity.

That is from Ryan A. Decker, John C. Haltiwanger, Ron S. Jarmin, and Javier Miranda.

1 Matthew Young January 26, 2018 at 12:53 am

Fixed fees on wages reduce the linear range. We get a lot of quick to hire then quick to fire contracts.

Example, look at chart on California unemployment and notice the extreme swings. When Cal moves a bit sideways, our labor markets exit a narrow range of stable elasticity, The labor collapse in a hunt to find the next common multiple going down.


2 Paul January 26, 2018 at 12:54 am

People don’t want to, or can’t, move as easily?


3 gaba January 26, 2018 at 1:19 am

The only thing worse than being poor and unemployed is being poor and unemployed in a strange city with no friends.


4 Axa January 26, 2018 at 3:38 am

Where’s the people that conquered the West American frontier?

It seems their treats were not inherited.


5 Mr. Econotarian January 26, 2018 at 3:48 am

My ancestors hop-scotched homesteading across the mid-West and Northwest. They always had several related families moving together. When you have 10 kids (without birth control) it is always easy to find a brother or cousin’s family to move with yours.


6 Bob January 26, 2018 at 2:15 pm

Weren’t they offered free land? Incentives matter. Back then, men were offered free plots of land if they moved out west, which would support a wife and kids, and people had lots of kids back then. The incentives don’t seem anything like that today, with the higher cost of real estate and the higher cost of attracting a wife with women now independent and in the workforce and having kids.


7 JonFraz January 26, 2018 at 2:17 pm

After 1863 at least those people had free land awaiting them, courtesy of the Federal government. And even before that land was easily come by on frontier territory. Get back to me when we have free housing and guaranteed work on offer for people who pull up stakes and move.


8 Mulp January 26, 2018 at 1:53 am

Job killing tax cuts.

Eliminating tax dodges for paying workers plus making share holder pay even more of the costs of paying workers while cutting the IRS share of labor costs.

Focus on cutting labor cost across the entire economy means cutting demand for GDP which slows productivity growth in most of the sectors by delaying replacement of productive capital assets.

Plus job killing deregulation. Eg, in the 90s Y2K plus required electronic filings and commercial interactions with Federal government forced costly investment in computer tech. Which cost so much computers failed to deliver higher productivity. Since 2000, killing jobs in the sector has resulted in higher productivity from computers, but that cut demand for GDP.

Building walls since the 90s boosted population growth hiding job killing driven cut to GDP. Until 2008 when multiple factors cut immigration driven GDP demand.

Virtuous productivity growth requires demand driven growth. The productivity growth as 8track and VCR demand fell and player sales fell and investment ceased is not desirable.


9 derek January 26, 2018 at 4:26 am

Responsiveness means what? The speed at which productivity enhancements are adopted or implemented?

I’ve ranted about the awful software systems here. They are expensive, complex, swallow vast resources to keep working, and only the largest firms able to hire and maintain a stable of capable developers can change and adjust to fit circumstances. And even in that case it is expensive and fraught.

Anecdote. Two of my wholesale suppliers recently changed software systems. I deal with them over the phone, and when I ask them something they say ‘let me look on the shelf’. That is a change; the systems they had previously had lookup function that made it easy to find stuff. I would guess that the system requires twice more time to process an order.

One of my customers has a complicated system for payables that is incapable of dealing with the complexities of the real world. Anything out of the ordinary means expensive and time consuming handholding. Almost all the stuff I do is out of the ordinary. They want me to charge our technician chargeout rate to do menial officework. I’m talking 3-4 hours per invoice. It is stupid. I’m limiting my exposure to them because they are going out of business. Because of this intractable and unresponsive system. You have to be extraordinarily well educated to do something this stupid.

And to fix either of those situations requires extraordinary amounts of work. Weeks by the best people you have, as well as the work required by the software vendor. So it doesn’t get done until it is untenable.


10 Ray Lopez January 26, 2018 at 10:13 am

What you describe is routine in the Philippines. Businesses here work on a “template” mode, and if your demand does not fit their narrow template, you are out of luck, like fitting a square peg into a too small round hole.

As for going out of business, that rarely happens when businesses lose just a few customers. Only where there’s a sea change in demand do businesses close in many industries. Name recognition from being first to market counts for a lot, even for an inferior product (see for example, among many, Bitcoin).


11 dearieme January 26, 2018 at 5:45 am

The vocabulary may be barbaric but the structure of the sentences is good. That’s high praise for writing on Economics.


12 rayward January 26, 2018 at 7:26 am

Corporate purchases of their own stock, Bitcoin mining, identifying and profiting from market anomalies through the use of powerful computers and algorithms, do these and so many other “investments” increase productivity? Indeed, what is “productivity” in a service economy? It’s far easier to identify and quantify productivity in an industrial economy. For example, it’s easy to quantify the productivity realized from investment in a lathe. I’ve noticed that the literature rarely uses the term “productive capital” any more. Even finding data on “productive capital” is very difficult. The distinction between “productive capital” and other types of investment was at one time fundamental, but no more. Bitcoin mining? Why does China invest so heavily in infrastructure, constructing entire cities (the population of Shenzhen was about 30,000 in 1980, it’s almost 12 million today) and connecting them via a network of high speed rail. Why does the U.S. no longer invest in modern infrastructure, or even maintain its old and deteriorating infrastructure? Do bankers and quants need infrastructure to make them productive? Again, what’s “productive capital” in a service economy?


13 Tom T. January 26, 2018 at 7:54 am

Might this simply reflect the maturing of the tech industry, similar to the way developing nations can achieve much higher rates of growth than developed ones?


14 spencer January 26, 2018 at 2:44 pm

In most firms lay-offs are on a LIFO ( last in; first out ) basis. I have seen some interesting analysis giving this as a significant factor in the decline in mobility since the Great Recession. If the Great Recession has caused peoples confidence that they will be able to stay employed decline, this makes a lot of sense


15 Ryan January 26, 2018 at 3:36 pm
16 Transnational Pants Machine January 26, 2018 at 4:40 pm

The richest and most powerful nation in the history of Earth has a productivity problem?

Sure, if you say so.

But what hope does that give to all the various Schumerholes in Africa, etc., if the USA isn’t even trying?


17 Jansen January 26, 2018 at 4:55 pm

Pace of job reallocation and idiosyncratic productivity shocks. Mhmmm…This is my kind of counterfactual analysis.


18 jorod January 27, 2018 at 10:12 pm

This was a period in time where we had a serious misapplication of investment in the real estate sector to the tune of over $2 trillion mostly on speculation. Taxation and unproductive government investment and borrowing reached all time highs. Not surprising results for productivity.


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