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Is Productivity Growth Too Strong For Our Own Good?

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Abstract

Productivity growth and improvement in a nation's standard of living are widely thought to go hand in hand. During the past 15 years, however, the gap between productivity growth and growth of living standards has widened, igniting a debate about whether a larger share of the benefits from productivity gains has gone to capital rather than labor. The first phase of our study characterizes U.S. productivity growth for the period 1948–2011. Our statistical analysis found that productivity growth did not follow one particular pattern over time, and we therefore doubt that it would follow one pattern (either a higher or lower growth rate) in the near future. Our analysis concludes that the “productivity resurgence” era of 1996:Q1 to 2011:Q4 is associated with lower growth rates of real per capita income, employment, and consumer confidence relative to productivity. That may validate the “savage cost-cutting” and “polarization” hypotheses. The stable and higher growth rates of corporate profits and the S&P 500 index indicate that capital and higher skilled workers may have gained benefits from productivity growth over time. A simultaneous rise in food stamp recipients and income share of the top 0.01 percent during the post-mid-1990s era suggest that the distribution of the stronger productivity growth gains is asymmetric.

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Notes

  1. The post-mid-1990s era experienced a strong productivity growth compared with last couple of decades and thereby known as era of “productivity resurgence” [Taylor 2008].

  2. We define productivity growth as real nonfarm business output per hour of all persons, seasonally adjusted, and a year-over-year percent change is used in the analysis.

  3. See Mansfield and others [1980] for details about the factors behind the strong productivity growth of the 1948–73 era. Refer to articles in the “Symposium on the Slowdown in the Productivity Growth” in the Journal of Economic Perspectives, fall 1988, for an overview of the “productivity slowdown” literature.

  4. The ADF test is commonly used to test whether a time series is nonstationary or not. Here we are not going to explain the details behind the test. Interested readers can see Greene [2002] for more details about the ADF test.

  5. See Maddala and Kim [2003] for more details about the Perron [1989] test and the econometrics of structural change.

  6. See Greene for more details about the spurious regression as well as unit root issues.

  7. See Maddala and Kim [2003] for a detailed discussion about cointegration and the Johansen test.

  8. For more details about the Granger causality test and concept of causality in econometrics, see Greene [2002].

  9. Note, however, that the Johansen test did find a statistically significant relationship between productivity growth and wages and salaries disbursements.

  10. Note the Consumer Confidence Index does not go back to 1948.

  11. Since this is an annual data series and the rest of our data set is quarterly, we did not conduct an econometric analysis. Instead, we provide the average growth rates for four sample periods.

  12. The food stamp recipients’ data series only goes back to 1980.

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This paper won the NABE Contributed Paper Award for 2012 and was presented at the NABE Annual Meeting in October 2012.

*Mark Vitner is a managing director and senior economist at Wells Fargo, responsible for tracking U.S. and regional economic trends. Mark joined Wachovia (then First Union) in 1993. Before that, he spent nine years as an economist for Barnett Banks in Jacksonville, FL. Vitner is a member of NABE and co-founded its Charlotte chapter. He is a distinguished lecturer and practitioner at the University of Georgia, chairs the economic advisory committee for the Bond Dealers of America, is a member of the Blue Chip Economic Indicators forecasting panel, and serves on the Joint Advisory Board of Economists for the Commonwealth of Virginia. He earned his B.B.A. in economics from the University of Georgia, an M.B.A. from the University of North Florida, and has completed further graduate work in economics at the University of Florida.   Azhar Iqbal is a vice president and econometrician at Wells Fargo, responsible for providing quantitative analysis to the Economics group and modeling and forecasting of macro and financial variables. Before joining Wells Fargo in 2007, he was an economist and course instructor at the Applied Economics Research Center at the University of Karachi. He has also worked as an economist at the United Nations, Arif-Habib Investment Bank, and for Government of Pakistan-funded projects. He received his bachelor's degree in economics from the University of Punjab and master's degree in economic forecasting from the State University of New York at Albany. He also has master's degrees in applied science and applied economics from University of Karachi and in econometrics and mathematics from the University of the Punjab.

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Vitner, M., Iqbal, A. Is Productivity Growth Too Strong For Our Own Good?. Bus Econ 48, 29–41 (2013). https://doi.org/10.1057/be.2012.38

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