Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. Larger information-technology quality adjustments and hours-worked measurement distortions explain about 30% of the average annual US-Euro area total factor productivity growth gap since 1995, leaving an adjusted gap near 0.25pp. The authors estimate greater US intangible investment spillovers contribute about 0.1pp, more efficient resource allocation about 0.1pp, and better management and larger firms about 0.05pp.

Pierfrancesco Mei Goldman Sachs
Date Posted:

Since 1995, US labor productivity has grown at a 2.1% mean annual rate, 2x that of the Euro area. Growth in capital input accounts for .55pp of the gap; spillovers from intangibles, greater allocative efficiency, and measurement error each explain ~.1pp.

Why does US productivity growth outpace the Euro area's?

Core argument: Larger IT quality adjustments and hours-worked measurement distortions explain roughly 30% of the average annual US–Euro area TFP growth gap since 1995, leaving an adjusted gap of about 0.25pp.

Labor productivity can be decomposed into three parts: the contribution of capital inputs to output per hour (“capital deepening”), the contribution of changes in characteristics of the labor force such as workers’ education to output per hour (“labor quality”), and [growth in] total factor productivity (TFP) - the portion of output growth not explained by the growth in labor and capital. Taken together, larger IT quality adjustments and hours worked measurement distortions explain approximately 30% of the average annual US-Euro area TFP growth gap since 1995, leaving an adjusted gap of around 0.25pp. Four main factors help to explain the adjusted gap in annual TFP growth [see figure]. First, US firms invested significantly more in intangibles such as software and R&D. These investments have boosted productivity growth [not only] through capital deepening [but also] via spillovers to TFP, [which] we estimate account for around 0.1pp of the annual TFP gap. Second, labor and capital are allocated more efficiently to productive firms in the US. If the Euro area had achieved US-level allocative efficiency, the US-Euro area TFP [growth] gap would be ~0.1pp lower each year. Better [US] management practices and the fact that US firms are larger than European firms throughout the firm lifecycle explain ~0.05 ppt.

Takeaways by Macro Roundup® AI

  1. Larger IT quality adjustments and hours-worked measurement distortions explain roughly 30% of the average annual US–Euro area TFP growth gap since 1995, leaving an adjusted gap of about 0.25pp.
  2. Spillovers to TFP from greater US investment in intangibles such as software and R&D are estimated to account for around 0.1pp of the annual US–Euro area TFP growth gap.
  3. Had the Euro area matched US allocative efficiency in assigning labor and capital to productive firms, the annual TFP growth gap would be about 0.1pp lower, with better US management practices and larger US firms across the firm lifecycle explaining ~0.05pp.

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