This document discusses slow productivity growth as a potential "new normal" in the US and Eurozone. It examines various potential explanations for slow productivity growth, such as a return to normal rates after an exceptional IT-driven period in the late 90s/early 2000s, the impact of the recession, and issues with industry regulation and dynamism. However, the timing of the productivity slowdown argues against some of these explanations. The document also explores challenges in measuring productivity growth, especially with new digital technologies, and concludes that slow potential growth may be the current reality, emphasizing the need for better measurement and policies to support research and investment.

1. Slow Productivity Growth: The New Normal?
June 2018
John G. Fernald
INSEAD

2. Slow Productivity Growth: The New Normal?
June 2018
John G. Fernald
INSEAD
YES

3. The rise and fall of fast U.S. productivity growth

4. Falling Euro-area TFP growth
Source: Bergeaud, Cette, and Lecat 2017 (total economy).

5. Stories for slow productivity growth
• Return to “normal” after exceptional IT-linked decade?
– Unusual period was late 1990s/early 2000s
– Every story at time emphasized transformative role of IT
• Recession?
– But TFP and labor productivity slowed earlier
• Regulation/lack of dynamism?
– Timing doesn’t work for post-2008 regulation. Besides:
• TFP in energy, finance-intensive industries do better after 2008
– No apparent link between industry TFP growth and industry-specific
regulation (Fernald, Hall, Stock, Watson 2017)
• Mismeasurement got much worse than in past?
– Little evidence (Byrne et al, 2016, Syverson, 2016)
YES
No
No
No

6. Growing mismeasurement of IT growth isn’t the answer

7. Growing mismeasurement of IT growth isn’t the answer

8. Measurement challenges have grown: Some priorities
• Better deflators
– Corrado, Byrne, Aizcorbe, etc…
• More/better use of big data, e.g., Amazon
• Satellite accounts for non-market production
– Service flow of consumer durables (e.g., Byrne and Corrado)
– Time use
– Create plausible bounds on welfare gains of new digital services

9. Takeaway: Slow potential growth the current reality
• Might see another productivity burst…or maybe growth will
remain incremental
• Need better measurement, and better fundamentals
– Appropriate antitrust enforcement
– More sustained investment in fundamental research
• Good news? Ideas flow across borders, and more people
globally are looking…

10. 10