Why is Productivity slowing down?

23 March 2020

Ian Goldin, Pantelis Koutroumpis, François Lafond and Julian Winkler
View Journal Article / Working Paper

The recent decline in aggregate labor productivity growth in leading economies has been widely described as a puzzle, even a paradox, leading to extensive research into possible explanations. Our review indicates that the slowdown has been highly significant and that it is largely driven by a decline in total factor productivity and capital deepening. Disaggregation reveals that a good part of the slowdown is due to sectors that experienced the large benefits from ICTs in the previous period, and that an increasing gap between frontier and laggard firms suggests slower technology diffusion and increasing misallocation of factors. We critically discuss and evaluate explanations that attempt to reconcile the paradox of slowing productivity growth and accelerating technological change, including mismeasurement, implementation lags for technologies, and creative destruction processes.