Working Paper

Productivity and Potential Output Before, During, and After the Great Recession

Abstract: U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules explanations that focus on disruptions during or since the recession, and industry and state data rule out ?bubble economy? stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.

Keywords: Potential output; productivity; information technology; business cycles; multi-sector growth models;

JEL Classification: E23; E32; O41; O47;

https://doi.org/10.24148/wp2014-15

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2014-06-05

Number: 2014-15

Pages: 50 pages