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Europe productivity -- and US too

John Cochrane The Grumpy Economist

Date Posted:: March 5, 2021
Is Database:: Database

Chad Jones “It Is Stunning To Me That Spain And Italy Have Had Negative TFP Growth For 20 Years”.

Over the past two decades, Spain and Italy have experienced negative Total Factor Productivity (TFP) growth, a phenomenon that Chad Jones finds astonishing. This stagnation suggests that while labor productivity may remain high, the productivity of other inputs is severely lacking. In contrast, countries like Germany and France appear to utilize modern technology effectively, yet their workers tend to work fewer hours than their US counterparts. The persistent negative TFP growth in Spain and Italy raises concerns about their ability to leverage technological advancements and optimize resource use, potentially hindering economic growth and competitiveness in the global market. This situation underscores the importance of addressing structural inefficiencies to enhance overall productivity.

Did you email Cochrane? He updated his post with productivity per hour worked. Chad Jones seems to have emailed him re: his post we looked at yesterday

He updated his post with a Productivity per hour worked series and contrasts that with TFP growth, “…In the top graph you get the impression that German and French workers are using up to date technology, including both machines, firm organization, opportunities to trade in a wide market, etc. but that they simply choose to, are incented to, or forced to work fewer hours than US workers. Italy and UK are still plodding along 20% or so inside the frontier.The bottom graph points a bleaker picture. I'm not an expert, but if labor productivity is high and total productivity is low, that means that the productivity of other inputs must be atrocious. Chad (amazing expert on all things growth) "It is stunning to me that Spain and Italy have had negative TFP growth for 20 years." I remember when real business cycles came out, and many were incredulous at the idea of negative productivity shocks. How can you forget how to do things?Well, maybe not for business cycles, but a society clearly can forget, and retrench. For centuries, remember, Italians looked up in wonder at the cupola of the Pantheon, the arches of the dry aqueducts, and wondered how they had been built….”

John Cochrane, "Europe productivity -- and US too," The Grumpy Economist, March 4, 2021, https://johnhcochrane.blogspot.com/2021/03/europe-productivity.html

(the guy who Chad got the TFP data via Jesus Fernandez-Villaverde is the “that’s just your opinion man” guy you had the back and forth with)

The College Wage Premium in the Generative AI Era

José Azar, Mireia Gine and Javier Sanz-Espín Social Science Research Network

Date Posted:: September 4, 2026
Is Database:: Database

The college wage premium flattened in the mid-2010s and has fallen ~8% since 2022. The authors argue that this compression reflects a broad decline in the returns to formal schooling, rather than a decline in the upper tail.

After expanding for four decades, the U.S. college wage premium [dropped] sharply from 0.626 in 2022 to 0.575 in 2026. Current Population Survey data through 2026 implies an unprecedented drop in relative demand for college labor—the first sustained negative relative demand growth. Post-2022 wage growth slowed disproportionately in high-exposure occupations, which employ a disproportionate share of college graduates. By 2026, going from zero occupational AI exposure to full exposure had a negative effect on wages of−0.086. Combined with the college–non-college exposure gap, this mechanism accounts for roughly 28% of the total drop in the college wage premium from 2022 to 2026. While non-causal, these patterns indicate that task displacement in AI-exposed white-collar occupations plays a quantitatively meaningful role in the recent compression of the aggregate skill premium.

Takeaways by Macro Roundup^® AI

The U.S. college wage premium fell from 0.626 to 0.575 between 2022 and 2026—the first sustained decline in relative demand for college labor after four decades of uninterrupted expansion.
Moving from zero to full occupational AI exposure reduced wages by 0.086 log points by 2026.
the college–non-college AI-exposure gap accounts for roughly 28% of the total premium compression over that period.

Gross and Net US Investment

Timothy Taylor Conversable Economist

Date Posted:: September 4, 2026
Is Database:: Database

U.S. real net private domestic investment—which adds to the American capital stock—is now only ~25% as large as gross investment, down from ~40% in the 1970s. Taylor suggests the widening gap between gross and net investment reflects the relatively rapid depreciation of IT-related capital.

The figure divides net investment by gross investment. Back in the 1970s, net investment was often around 40% of gross investment, but the share has been slumping over time. For the last decade or so, net investment has been about 25% of the gross–that is, about three-quarters of gross investment is just making up for depreciation of the pre-existing capital stock. The likely reason for the growing gap between gross and net investment is that modern investment is more likely to be related to information technology [which] depreciates more rapidly and thus needs to be replaced and updated more often. If we want the average US worker to be using a greater amount of capital on the job–which was one of the key drivers of rising labor productivity in the past–it now takes a bigger rise in gross investment to lead to a given rise in net investment.

Takeaways by Macro Roundup^® AI

Net investment has fallen from ~40% of gross investment in the 1970s to ~25% today, meaning three-quarters of gross investment now merely replaces depreciating capital rather than expanding the productive stock.
The shift toward information technology — which depreciates faster than physical machinery — is the primary driver of the widening gap between gross and net investment.
Raising capital per worker, a historic engine of labor productivity growth, now requires a substantially larger increase in gross investment than it did several decades ago.

The AI Re-Acceleration That Wasn’t

Paul Kedrosky Applied Complexity

Date Posted:: September 3, 2026
Is Database:: Database

Kedrosky argues AI capabilities continue to improve, but “the full composite data shows flattening relative gains, not acceleration…rolling relative model gains have fallen from their 2024 peak, while model dispersion has narrowed sharply.”

Using all Epoch’s Capabilities Index observations, and controlling for developer and model family, there is no statistically significant breakpoint. A piecewise model—which splits the series into intervals and applies a sub-function to each segment—does not improve on a purely linear trend: p = 0.615, The estimated change in slope has a confidence interval of -8.4 to +23.4 points per year. In short, the maths shows there is no model acceleration, contrary to claims, and as expected. The result comes from selecting frontier observations only, choosing a breakpoint, ignoring variance collapse, and fitting separate lines on either side.

Takeaways by Macro Roundup^® AI

Epoch’s Capabilities Index shows no statistically significant AI performance acceleration when controlling for developer and model family, with a breakpoint test returning p = 0.615 and a slope-change confidence interval of -8.4 to +23.4 pts per year.
Claims of AI re-acceleration rest on a methodological artifact: selecting only frontier model observations, pre-choosing a breakpoint, ignoring variance collapse, and fitting separate trend lines on each side of that breakpoint.

Understanding AI and Productivity

Chad Syverson Economic Innovation Group

Date Posted:: August 28, 2026
Is Database:: Database

Syverson is skeptical that AI initiated the rise in productivity growth that began in 2023. The acceleration began while AI investment was small, and pandemic-era labor market churn and business dynamism match the acceleration’s start.

Productivity from mid-2022 on has maintained a faster-than-2010s trajectory involving annual growth of about 2.2%. Could this acceleration be due to AI? Perhaps. The timing leans against AI being the sole initial cause. Additionally, there were well-documented increases in economic dynamism (labor market churn and business formation) during the pandemic emergence whose timing matches the acceleration’s start. Regardless of AI’s current effect, the longer the aggregate productivity acceleration continues, the more plausible it is that AI is an important driver. As for the magnitude, a sustained increase from 1.5 to 2.2% annual productivity growth would be substantial (after a decade, GDP per capita would be 7% higher than otherwise), but hardly unprecedented. The 1995–2004 productivity boom saw annual productivity growth of nearly 3% per year, and other past general-purpose-technology-related productivity boosts saw labor productivity growth in excess of 2.5% for a decade or longer.

Takeaways by Macro Roundup^® AI

U.S. labor productivity has grown at roughly 2.2% annually since mid-2022, a pace exceeding the 2010s trend and, if sustained, implying GDP per capita roughly 7% higher within a decade than the prior trajectory.
The 1995–2004 productivity boom averaged nearly 3.0% annual growth, establishing that a durable AI-driven acceleration to 2.2% would be meaningful but well within historical precedent for general-purpose-technology cycles.
Pandemic-era surges in labor market churn and business formation align more precisely with the productivity acceleration’s start date than AI adoption does, complicating AI-as-sole-cause narratives.

US Widens AI-Driven Investment Gap With Europe

Sam Fleming, Amy Borrett and Olaf Storbeck Financial Times

Date Posted:: August 24, 2026
Is Database:: Database

Oxford Economics projects US real business investment will rise 40% over 2021–2027, ~3x the euro area’s 12%. US investment growth since 2024 has been largely information processing and software, but high US growth in GDP/hour is not “merely digital.”

Corporate spending on new equipment and facilities in the US is projected to increase 40% in real terms between 2021 and the end of next year, according to forecasts from Oxford Economics. The US surge compared with a real-terms increase of just 12% in the euro area, while German business investment is expected to have all but stagnated over the same period. Europe also faces a large and growing productivity gap with the US. “The United States has recently pulled further ahead of Europe,” Bart van Ark, a professor at the University of Manchester, told policymakers at the ECB Forum in Sintra. GDP per hour worked increased $14 in the US between 2018 and 2025, compared with just $2 in Europe. “The gap is not only a digital sector story,” added van Ark, stressing that the US outperformance extended to other sectors, including wholesale and retail as well as professional services.

Takeaways by Macro Roundup^® AI

U.S. corporate investment in equipment and facilities is projected to rise 40% in real terms between 2021 and end-2026, versus 12% in the euro area and near-zero growth in Germany, sharply widening the transatlantic capital-spending gap.
U.S. labor productivity rose $14 per hour worked between 2018 and 2025, versus $2 in Europe, with outperformance spanning wholesale, retail, and professional services—not solely the digital sector.

Why Big Tech’s AI Spending Is $3 Trillion Higher Than It Seems

Peter Rudegeair and Peter Santilli Wall Street Journal

Date Posted:: August 17, 2026
Is Database:: Database

A WSJ analysis finds 9 firms involved in the data center buildout have ~$3T in off-balance-sheet commitments largely tied to AI infrastructure. The growth in such obligations has outpaced the firms’ capex growth over the last year.

Nine top tech companies had some $3 trillion of off-balance-sheet commitments mostly related to AI, according to a Wall Street Journal analysis of footnotes in their most recent securities filings. Those obligations are growing faster than traditional “capex,” which totaled about $600 billion over the past year they reported, and were about triple what the companies owe under their outstanding leases and long-term borrowings.

Chad Jones “It Is Stunning To Me That Spain And Italy Have Had Negative TFP Growth For 20 Years”.

The college wage premium flattened in the mid-2010s and has fallen ~8% since 2022. The authors argue that this compression reflects a broad decline in the returns to formal schooling, rather than a decline in the upper tail.

Is the college degree losing its economic value to artificial intelligence?

Takeaways by Macro Roundup® AI

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U.S. real net private domestic investment—which adds to the American capital stock—is now only ~25% as large as gross investment, down from ~40% in the 1970s. Taylor suggests the widening gap between gross and net investment reflects the relatively rapid depreciation of IT-related capital.

Does faster asset depreciation explain slowing productivity growth?

Takeaways by Macro Roundup® AI

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Kedrosky argues AI capabilities continue to improve, but “the full composite data shows flattening relative gains, not acceleration…rolling relative model gains have fallen from their 2024 peak, while model dispersion has narrowed sharply.”

Are AI performance gains accelerating or just appearing to through selective measurement?

Takeaways by Macro Roundup® AI

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Syverson is skeptical that AI initiated the rise in productivity growth that began in 2023. The acceleration began while AI investment was small, and pandemic-era labor market churn and business dynamism match the acceleration’s start.

Is AI-driven productivity growth sustainable at historical technology boom levels?

Takeaways by Macro Roundup® AI

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Oxford Economics projects US real business investment will rise 40% over 2021–2027, ~3x the euro area’s 12%. US investment growth since 2024 has been largely information processing and software, but high US growth in GDP/hour is not “merely digital.”

Is artificial intelligence investment widening the transatlantic productivity divide?

Takeaways by Macro Roundup® AI

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A WSJ analysis finds 9 firms involved in the data center buildout have ~$3T in off-balance-sheet commitments largely tied to AI infrastructure. The growth in such obligations has outpaced the firms’ capex growth over the last year.

Are technology companies hiding the true cost of artificial intelligence?

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Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI