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Macro Roundup


Friday, March 4, 2016

AI Summary. The authors argue mismeasurement does not explain the U.S. productivity slowdown since 2004, which has left output about $2.7tn below prior trends. They note the slowdown appears across many countries regardless of information-technology intensity, and estimates of consumer surplus from digital technologies are far smaller than the missing output.

Chad Syverson National Bureau of Economic Research
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The U.S. productivity slowdown since 2004 has resulted in a $2.7tn gap, with mismeasurement not accounting for this shortfall.

Does mismeasurement explain the U.S. productivity slowdown?

Core argument: The U.S. productivity slowdown since 2004 has opened a $2.7tn gap relative to expected trends, a shortfall the authors argue mismeasurement does not explain.

The U.S. productivity slowdown since 2004 has resulted in a $2.7tn gap compared to expected trends, and mismeasurement does not account for this shortfall. The slowdown is evident across numerous countries, unrelated to their ICT consumption or production intensities. Estimates of surplus from digital technologies are significantly less than the missing output, with the largest being less than one-third of the mismeasured GDP. Properly measured output and productivity growth in ICT industries would need to be multiples of current data if mismeasurement were a factor. Additionally, the trend of higher gross domestic income over GDP, driven by high capital income, predates the slowdown, further challenging the mismeasurement hypothesis.

Takeaways by Macro Roundup® AI

  1. The U.S. productivity slowdown since 2004 has opened a $2.7tn gap relative to expected trends, a shortfall the authors argue mismeasurement does not explain.
  2. Estimates of surplus from digital technologies fall well short of the missing output, with the largest under one-third of the allegedly mismeasured GDP.
  3. The productivity slowdown appears across many countries regardless of their ICT consumption or production intensities, and the rising ratio of gross domestic income to GDP, driven by high capital income, predates the slowdown.

right in Robert Gordon's wheelhouse. new paper finds the productivity slowdown is real, not a function of our measures failing to capture consumer surplus. Syverson estimate the the productivity slowdown since 2004 has left a 2.7 trillion gap compared to where we otherwise would be had trends continued.

"... First, the productivity slowdown has occurred in dozens of countries, and its size is unrelated to measures of the countries’ consumption or production intensities of information and communication technologies (ICTs, the type of goods most often cited as sources of mismeasurement). Second, estimates from the existing research literature of the surplus created by internet-linked digital technologies fall far short of the $2.7 trillion or more of "missing output" resulting from the productivity growth slowdown. The largest—by some distance—is less than one-third of the purportedly mismeasured GDP. Third, if measurement problems were to account for even a modest share of this missing output,the properly measured output and productivity growth rates of industries that produce and service ICTs would have to have been multiples of their measured growth in the data. Fourth, while measured gross domestic income has been on average higher than measured gross domestic product since 2004—perhaps indicating workers are being paid to make products that are given away for free or at highly discounted prices—this trend actually began before the productivity slowdown and moreover reflects unusually high capital income rather than labor income (i.e., profits are unusually high). In combination, these complementary facets of evidence suggest that the reasonable prima facie case for the mismeasurement hypothesis faces real hurdles when confronted with the data...."

Chad Syverson, "Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown," National Bureau of Economic Research, February 2016, http://faculty.chicagobooth.edu/chad.syverson/research/productivityslowdown.pdf
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Monday, March 7, 2016

AI Summary. U.S. productivity growth has slowed markedly since 2004, and the authors argue mismeasurement of information technology hardware, software, and services is not the main cause, since adjustments leave the slowdown in total factor productivity largely intact. They point to declining economic dynamism, including fewer startups and slower labor reallocation, as consistent with slower diffusion of innovation.

David Byrne Brookings
Date Posted:
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US productivity growth has slowed since 2004, with adjustments to IT-related hardware, software, and services showing only modest improvements in GDP and investment figures. @DavidByrne

Does mismeasurement of information technology explain the productivity slowdown?

Core argument: Byrne, Fernald, and Reinsdorf find U.S. productivity growth has slowed markedly since 2004, and adjusting IT-related hardware, software, and services raises GDP and investment figures only modestly, indicating mismeasurement is not the primary cause of the slowdown.

Despite ongoing IT-related innovation, U.S. productivity growth has slowed markedly since 2004, with adjustments to IT-related hardware, software, and services showing only modest improvements in GDP and investment figures. The slowdown in labor productivity is even larger after durable-goods adjustments, while the slowdown in TFP [Total Factor Productivity] remains largely unaffected, indicating that mismeasurement is not the primary cause. This trend is mirrored globally, suggesting underlying macroeconomic factors are at play. The decline in economic dynamism, evidenced by fewer startups and slower labor reallocation, supports the notion of slower diffusion of productivity-enhancing innovations. The fast-growth period of 1995-2004 appears to be an anomaly, with modest productivity growth being the norm since the early 1970s. If slow productivity growth persists, it implies slow potential growth, impacting taxes and budgets despite some offsetting benefits in nonmarket sectors.

Takeaways by Macro Roundup® AI

  1. Byrne, Fernald, and Reinsdorf find U.S. productivity growth has slowed markedly since 2004, and adjusting IT-related hardware, software, and services raises GDP and investment figures only modestly, indicating mismeasurement is not the primary cause of the slowdown.
  2. Adjustments for durable goods make the labor productivity slowdown larger while leaving the total factor productivity slowdown largely unaffected, and the slowdown appears globally, suggesting underlying macroeconomic factors.
  3. Byrne, Fernald, and Reinsdorf treat the fast-growth period of 1995–2004 as an anomaly against modest productivity growth that has been the norm since the early 1970s, with declining dynamism — fewer startups and slower labor reallocation — consistent with slower diffusion of innovations.

when it rains it pours. more evidence there is a productivity slowdown from the Fernald. some interesting stuff on intangible output and capital deepening, accounting for which still doesn’t effect the slowdown. for example including intangibles doesn’t effect the TFP slowdown (footnote 18) mirrors the other paper, different methodology

“…The “productivity paradox 2.0” remains alive: Despite ongoing IT-related innovation, aggregate U.S. productivity growth slowed markedly after 2004 or so. We propose several adjustments to IT-related hardware, software, and services. The good news is that the adjustments make recent growth in GDP and investment look modestly better than recorded. The bad news is that it makes the paradox even worse—the slowdown in labor productivity is even larger after our durable-goods adjustments, while the slowdown in TFP is not much affected. The reason is that mismeasurement was substantial in the 1995-2004 period as well as more recently, and rising import penetration for computers and communications equipment means that domestic production (which matters for GDP) has fallen over time.Moreover, that the slowdown was broadbased suggests that ongoing innovation in IT is not substantially spilling over into other areas.Other measurement challenges, such as digital services, globalization, and fracking, go in the right direction but are small.Other evidence also suggests that true underlying growth is relatively modest. First, the U.S. productivity slowdown has been mirrored in many parts of the world (Eichengreen et al., 2015; Cette, et al, 2016). This suggests underlying macroeconomic factors may be driving the slow pace of growth, given the varied sources and methods used across national statistical systems. Syverson (2015) finds that the slowdown across countries is not correlated with IT production or use, again suggesting that the problem is not mismeasurement related to IT goods or services. Second, the decline in economic dynamism—both in the form of fewer startups and slower reallocation of labor resources in response to productivity shocks—supports the idea that productivity-enhancing innovations are diffusing through the economy more slowly (Decker et al., 2015; Haltiwanger et al., 2015). Relatedly, Mandel (2015) looks at labor market metrics such a such as occupational employment and help-wanted ads, and finds evidence consistent with tremendous occupational change in narrow segments of the economy (such as IT and oil/gas extraction), but little evidence suggesting widespread, rapid innovation.If not mismeasurement, why did productivity growth slow? The slowdown predated the Great Recession, which suggests that event was not the story—or, at least, not the whole story. Given that growth was similar in the 1970s and 1980s as it has been since 2004,a plausible story is that it was the fast-growth 1995-2004 period that was the anomaly. With the Internet, the reorganization of distribution sectors, and the like, a lot of things came together in a short period of time. With hindsight, that looks like a one-time upward shift in the level of productivity rather than a permanent increase in its growth rate. Looking forward, we could get another wave of the IT revolution. Indeed, it is difficult to say with certainty what gains may yet come from cloud computing, the internet of things and the radical increase in mobility represented by smartphones. But, since the early 1970s, modest and incremental productivity growth has more often been the norm. Changes in overall welfare are somewhat harder to assess. Transformative gains related to mobile technologies and the Internet clearly raise welfare. We argued that most of those gains properly belong outside the purview of market-sector GDP—and proposals to incorporate them into GDP raise concerns. But that does not mean these innovations are not valued by households—they are.Still, the available estimates of the welfare gains (based on the value of leisure time) suggests that “free” digital services add the equivalent of perhaps 3/10ths percent of GDP per year to wellbeing. That is small relative to the 1-3/4 percent slowdown in labor productivity growth in the business sector from 2004-2014…..Finally, we conclude with implications for policymakers. Slow productivity growth, if it persists, implies slow potential growth going forward. Benefits in the nonmarket sector can offset that somewhat for well-being, but it does not help with taxes or the budget….”

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David Byrne, John Fernald, Marshall Reinsdorf, “Does the United States have a Productivity Slowdown or a Measurement Problem?”Brookings Papers on Economic Activity, March 1, 2016. Available at:http://www.brookings.edu/~/media/projects/bpea/spring-2016/byrneetal_productivitymeasurement_conferencedraft.pdf