THE SLOWDOWN IN US PRODUCTIVITY GROWTH - WHAT EXPLAINS IT AND WILL IT PERSIST?
Ursel Baumann
European Central Bank
Melina Vasardani
Bank of Greece
Abstract
The US recovery following the Great Recession has been marked by persistent low growth. At the same time, productivity growth has consistently disappointed in the aftermath of the last recession. This has raised doubts about the long-term growth prospects of the US economy and led to worries about secular stagnation. This paper contributes to the debate by empirically revising the main determinants of labour productivity growth over the period 1999-2013 for a panel of US states, focusing on capital deepening, R&D spending, the sectoral composition, financial factors and business dynamism. We find that more than half of the slowdown in productivity growth in the period 2011-13 relative to its sample average is due to a decline in the rate of capital deepening. The other major factor explaining the recent weakness in productivity growth - more closely related to TFP - is the slowdown in business dynamism experienced by the US economy. By contrast, financial factors appear to have become supportive of productivity growth in that period.
Keywords: Labour productivity; Total factor productivity; Potential output; Business dynamism.
JEL Classification: D24; E24; J24; O47
Acknowledgements: We thank M. Chinn and B. Schnatz for fruitful suggestions. The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the Bank of Greece, the ECB or the Eurosystem. All errors and omissions remain the authors' responsibility.
Correspondence:
Ursel Baumann
European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main, Germany
E-mail: ursel.baumann@ecb.europa.eu