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America's Productivity Puzzle - 7/30/14

One of the great economic puzzles of the day is America’s productivity puzzle.  Why is American productivity not expanding more rapidly?  Labor productivity, which is measured as output per hour worked, has expanded at a 1.7 percent annualized rate during the recovery, about half the pace of the mid-2000s. 

According to Moody’s Analytics, over the past year, productivity has all but stopped expanding.  One explanation has been the slowdown in business investment since the technology bust of the early 2000's.  Investment in technology can boost worker productivity.  Remarkably, investment in technology declined more during the Great Recession than it did during the tech bust of more than a decade ago, and the rebound in technology investment has been weaker than during any similar period since World War II.

While productivity growth isn’t expected to pick up soon, it may eventually.  One source of irony is that because many young people stayed in school longer during the economic downturn, we today have a more educated workforce.  One third of those employed in the U.S. now have college degrees, and this share will continue to rise.  That could be a source of expanding productivity going forward.

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.