The new Brookings paper on the productivity slowdown
This piece (pdf) is by David M. Byrne, John G. Fernald, and Marshall B.Reinsdorf. It argues that the productivity slowdown is real, and not the result of mismeasuring the value of information technology. Here were some of the newer bits for me:
Adjustments to equipment, software, and intangibles imply faster GDP growth but also faster input growth (since effective capital services are rising more quickly). After adjusting hardware and software, the aggregate TFP slowdown after 2004 is modestly worse. Adding additional intangibles, as in Corradoet al. (2009), works modestly in the other direction, so in our broadest adjustment for investment goods leaves the 1-1/4 percentage point TFP slowdown little changed.
And later they restate the point in more general terms:
…we highlight here the conceptual reason why it is hard for capital mismeasurement to explain the past slowdown in TFP growth: It affect inputs as well as output in largely offsetting ways.
Note that there are some unmeasured productivity gains from fracking:
…fracking allow[s] access to lower “quality” natural resources is imperfectly measured. A back-of-the-envelope calculation suggests that true aggregate labor and TFP growth might be 5 basis points faster since 2004.
Outsourcing however cuts the other way:
…the import-prices declines from offshoring are largely missed. This led to an understatement of true import growth in the late 1990s and early 2000s (the time of China’s WTO accession), and a corresponding overstatement of perhaps 10 bp in growth in output, labor productivity, and TFP.
That makes three very good papers in the last few weeks, by very reputable economists, coming from different directions, but all establishing more or less the same conclusion. My discussions of the other two papers are here and here.
So will this myth finally die?