Long-term productivity

Posted by: Michael Mandel on September 14

As part of my latest piece on Fed policy, I asked several top economists for their forecast of long-term productivity growth. The exact question for the mini-survey was:

What do you think the sustainable rate of productivity growth is likely to be over the next few years? (I’d prefer a single number, but a range would be okay too)

This is obviously a key question for Fed policy, forecasts of future tax revenues, U.S. competitiveness, American well-being, and basically anything that has to do with the future. High numbers are good, low numbers are bad.

I asked the exact same question for a story in 2004 (see here and here). Back then, the responses ranged from a high of 3.3% per year to a low of 2.25%, with an average of 2.75%.

The current mini-survey shows that the range of answers has compressed (see below). The forecasts now run from 2.25% to 2.5%. I didn’t do an average, since the range was so narrow.

But that’s still pretty good. The long-term historical average since World War II is 2.2%, the ten year average is 2.56%.

The one cautionary note, which I raise in the story, is that long-term productivity trends can shift unexpectedly. And the recent slowdown in reported productivity does worry me.

Added Note 9/19
For more on productivity, see spencer’s post on angrybear here.



























































             
The Productivity Consensus
  Expected long term productivity growth
   
  Forecast Affiliation  
Hal Varian 2.5 University of California at Berkeley
Alan Krueger 2.5 Princeton University  
Dale Jorgenson 2.4 * Harvard University  
Bill Nordhaus 2.3 Yale University  
Martin Baily 2.25 Brookings Institution  
Kevin Hassett 2.25 American
Enterprise Institute
   
*Preliminary          

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Reader Comments

spencer

September 17, 2007 01:03 PM

You should look at my comments on productivity growth at Angry Bear today.


http://angrybear.blogspot.com/

Lord

September 17, 2007 02:21 PM

No suggestion of a secular rise or even a permanently high plateau I take it. So much for the singularity proponents.

Kartik

September 17, 2007 03:18 PM

What about Multi-Factor Productivity (MFP)? How has that come out in the last 5 years, and what are the projected trends?

Mike Mandel

September 17, 2007 04:01 PM

I'll get the multifactor productivity trends. I have to say, though, that I think capital investment is understated, which means that multifactor productivity is overstated.

Kartik

September 17, 2007 07:04 PM

"So much for the singularity proponents. "

Lord,

What does that have to do with a Singularity? Credible futurists all agree on a Singularity between 2040 and 2070. Fluctuations in productivity this far ahead do not confirm or deny the trend towards a singularity.

Thomas A. Coss

September 17, 2007 08:07 PM

It seems to me that your concern with regard to productivity is perfectly consistent with the growth of labor in the health care sector about which you wrote in detail year ago this month.

Productivity in health care is illusive at best. Still the Economist in the late 90's said that per worker productivity in health was actually negative for the decade, which I believe. Sicker patients, increasing regulation, complex procedures with even more complex billing requirements all impact the efficiency of providing health care services.

Perhaps an additional look into capital expenditures in health care is in order.

david foster

September 17, 2007 09:13 PM

How does offshoring get reflected in these numbers? If I make gerbilators and all their components in the US...and then I switch to getting the components from China and just putting them together here, will that show up as a productivity improvement?

I know you've addressed this in some of your earlier work, but brain is not working wel at this hour of the night...

Kevin

September 17, 2007 11:24 PM

*** So much for the singularity proponents ***

Yeah but the singularitards are banking on artificial intelligence, and it looks like Michael didn't ask any COMPUTERS what THEY think.

Mike Mandel

September 19, 2007 01:31 PM

re offshoring. Nonfarm business productivity is derived from the GDP accounts, which ostensibly subtracts out imports. So in theory, these forecasts should reflect domestic productivity growth.

Now, based on my earlier story, I'm really pretty sure that a portion of productivity growth since 2000 is actually cost-cutting from offshoring which has been misattributed to the domestic economy. The exact amount is unknown, but I suspect it is pretty high.

However, in fairness to the economists who I surveyed, I wanted to present their forecasts without commentary from me.

Brandon W

September 19, 2007 03:48 PM

"I'm really pretty sure that a portion of productivity growth since 2000 is actually cost-cutting from offshoring which has been misattributed to the domestic economy. The exact amount is unknown, but I suspect it is pretty high."

Fortunately, the corporation that is smart enough to offshore will get these productivity gains. The US national productivity numbers may not actually rise, but we can continue to improve the productivity of our corporations as we take work to lower cost-per-output nations. Americans need to reduce their wages or substantially increase their output if they want the productivity gains to also increase their employment. It is on the American labor force to figure out how to do this; it's not the corporations' problem.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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