The Great Productivity Puzzle


The Rise and Fall of American Growth, Author: Robert Gordon.

By John Cassidy – When productivity rose rapidly, as it did in the period from 1945 to 1973, wages also rose rapidly. When productivity growth slowed sharply, as it did between 1973 and 1995, wage growth also stagnated.

In the United States over the past twenty years, however, the tight relationship between productivity growth and wage growth has broken down.

None deny that, over the long term, a healthy rate of productivity growth is a prerequisite for a further rise in living standards. Or that an anemic rate of productivity growth is a recipe for stagnation and class conflict.

Some numbers tell the story. Between 1947 and 1973, output per hour (the standard measure of labor productivity) rose at an annual rate of about three per cent. Then, between 1974 and 1995, for reasons that have never been fully explained, the rate of growth fell by half, to 1.5 per cent.

Not coincidentally, this was the period when wage growth started to stagnate. Then things improved. For a decade or so, perhaps owing to the development of the Internet, the rate of productivity growth returned to about three per cent, and wages started to rise again.

Optimists predicted a bright future—one that didn’t materialize. more>


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