Working Paper

Productivity Slowdown: Reducing the Measure of Our Ignorance

Abstract: Growth accounting suggests that the bulk of the post-2004 slowdown in output growth in the U.S. is attributed to a residual called TFP. In this paper we provide a tractable accounting framework with firm heterogeneity to link this residual to innovations, markup dispersion, and potential measurement errors. Theories of creative destruction offer rich testable predictions of how the quality upgrading of products, the process efficiency of different firms, and markup dispersion in the market interact and therefore constitute a key approach to shed light on the slowdown in TFP growth. Surveying the literature on measurement, we conclude that measurement errors is unlikely to explain the recent deceleration in TFP growth.

Keywords: growth accounting; development accounting; growth slowdown; measurement; innovation;

JEL Classification: O31; O47; O51;

https://doi.org/10.24148/wp2021-21

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2021-08-22

Number: 2021-21