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October 11, 2005

Winners and Losers

Michael Mandel

As regular readers of this blog know, I think that total factor productivity growth is the best measure of an economy's health. A new paper from the BIS calculates TFP growth for most of the large industrial countries over the past 40 years, and comes up with some surprising conclusions (Thanks to the very sharp New Economist for pointing out the paper).

Here are the winners and losers, ranked by two criteria--current level of TFP growth, and change in TFP growth over the past forty years.

Big Winners:

US

Australia

Ireland

Doing okay but not great:

France

Norway

Sweden

Canada

Denmark

New Zealand

Iceland

Disaster areas:

Switzerland

Japan

Germany

UK

Belgium

Netherlands

Spain

Italy

The big surprises are the decent performance of France, and the terrible performance of the UK, Netherlands, and Spain, especially since the UK and Spain are thought of as success stories. France has maintained roughly a 1% growth rate of TFP for the past 40 years, which is not bad but not terrible either, especially when compared to the 0.3% clocked by Japan. I have actually begun to worry more about the UK than France.

Here is the full data table. I ranked the countries on current TFP growth, and the amount of change in TFP growth, and then averaged the rankings.

01:08 PM

Growth

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Prof Mandell,

I am confused about a point. How are we taking this as a good criteria to judge the economy ?

Productivity will obviously increase if we move all manufacturing jobs to OEM and keep only hi tech work....but what about the produce as such ?

what about unemployment ?

Posted by: USD at October 11, 2005 06:42 PM

Michael,

I still have the following question :

You recently wrote that the MFP for the last 3 years in the US was the best since 1967 or something. The MFP growth from 2002-04 was much better than 1996-1999.

If MFP is the best measure of the health of an economy, :

1) Does this mean that the economy today is the best in the last 37 years?

2) Does it mean that the economy today is much healthier than in the late 1990s, despite the better GDP, job growth, consumer confidence, etc. of that time? How so?

Posted by: Kartik at October 11, 2005 07:06 PM

Hi Kartik

Productivity data tends to bounce around a lot, so it's best averaged over a decade or so. And yes, I would say that the economy over the past decade is the best that it's been since the 1960s.

And addressing USD's point. Productivity gains with rising unemployment is not a good thing...however, the current level of unemployment is relatively low, and the U.S. seems to have done a better job of generating new jobs than countries like Germany, which have a much lower productivity growth rate.

Posted by: Mike Mandel at October 12, 2005 08:48 AM


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