Why is productivity slowing down?

17 September 2018

View Journal Article / Working Paper

Productivity growth is an essential component of economic growth and development. The recent slowdown in aggregate labour productivity in leading economies has been widely identified as a puzzle, even paradox, leading to extensive research into possible explanations. In this paper, we review the relevant literature and identify the reasons underpinning slowing productivity, which appears orthogonal to recent technological advances. Our review indicates that the slowdown is real, and that while many factors matter, it can be largely explained by a slowdown of investment, an increasing gap between frontier and laggard firms, a slowdown in trade, and technological change. An apparent paradox, which contrasts the slowdown in productivity growth with accelerating technological change, may be explained by mismeasurement, implementation lags for technologies, and creative destruction processes which means that a growing share of investment and business practices are out of date.