America's Productivity Puzzle - 7/30/14
One of the great economic puzzles of the day is America’s productivity puzzle. Why is American productivity not expanding more rapidly? Labor productivity, which is measured as output per hour worked, has expanded at a 1.7 percent annualized rate during the recovery, about half the pace of the mid-2000s.
According to Moody’s Analytics, over the past year, productivity has all but stopped expanding. One explanation has been the slowdown in business investment since the technology bust of the early 2000's. Investment in technology can boost worker productivity. Remarkably, investment in technology declined more during the Great Recession than it did during the tech bust of more than a decade ago, and the rebound in technology investment has been weaker than during any similar period since World War II.
While productivity growth isn’t expected to pick up soon, it may eventually. One source of irony is that because many young people stayed in school longer during the economic downturn, we today have a more educated workforce. One third of those employed in the U.S. now have college degrees, and this share will continue to rise. That could be a source of expanding productivity going forward.