The U.s. Productivity Slowdown: What the Experts Say

U.S. productivity growth has slowed significantly since 1973; moreover, U.S. productivity continues to grow at a slower rate than that of our major trading partners. What caused these things to happen? The answer to this question is still unsettled, although a number of potential explanations are being debated in the economics literature. These include energy prices, labor quality, measurement error, adequacy of mineral resources, governmental regulations, investment opportunities, managerial practices, and governmental trade policies. These explanations will be discussed in this article. Two measures of productivity are commonly used. Labor productivity, or output per hour, is the simpler of the two to construct. To measure output per hour in the nonfarm business sector, one must first measure nominal output, defined as the market value of final goods and services produced in that sector. Then one must deflate the nominal output by the relevant price index to obtain real output. The final step requires dividing the estimate of real output by the number of hours worked in the nonfarm business sector to get per hour output. Quarterly labor productivity data for the U.S. nonfarm private business sector from 1947 to 1987 are plotted on Chart 1. The chart shows actual labor pro-