🔀 What's next for US productivity growth?
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🔀 What’s next for US productivity growth?
This year has marked the 50th anniversary of what I call “The Great Downshift,” the prolonged and seemingly permanent decline in labor productivity growth that started in 1973. (In my new book, The Conservative Futurist, I analyze at length the myriad possible causes.) Without a Great Upshift in productivity growth, economic growth — the main driver of higher incomes and living standards — will remain historically and almost imperceptibly slow.
Unfortunately, the consensus economist forecast, from Wall Street to Washington, is for more of the same in coming years. For example: The Congressional Budget Office sees the likely long-run, non-inflationary growth potential of the US economy as 1.8 percent, same as the Federal Reserve. And once you get beyond the next couple of years, most bank forecasts offer a similar baseline trend. Embedded within all these projections is a prediction about productivity growth.
Given the demographically driven downshift in labor force growth, it will take much faster productivity growth — and/or much greater immigration — to merely match the economic growth of the past 30 years. Indeed, the match the average GDP growth rate of the entire postwar era, about 3 percent, would require the fastest productivity growth rates of the postwar era.
Economists will be cautious in making forecasts of accelerating productivity growth due to technological advances such as AI. (The overall short-run jumpiness of the numbers also suggests caution). Pretty tough to plug that into a model. We just don’t know the impact of AI or any other important new technology. Even if you think the impact will be a big one, we don’t know how long it will take before that impact kicks in.
So what are economists saying right now about productivity growth? First some context: Productivity, or nonfarm business employee output per hour, rose at a 4.7 percent annualized rate in the third quarter after climbing 3.6 percent in the prior period. So some nice green shoots, especially when you consider productivity was also showing some new vigor in 2019, up 2.3 percent, right before the pandemic. And for the past year through September, productivity grew 2.2 percent, twice the pre-pandemic 10-year trend of just 1.1 percent per year.
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