Why Is Labor Productivity Growth So Sluggish?

by Reihan Salam

How can we reconcile the fact that there are many sectors of the U.S. economy in which we’re seeing dramatic technological advances, yet labor productivity growth is so low that it was actually negative over the last two quarters? Andrew McAfee offers an elegant explanation at the FT, which I highly recommend. The basic story is simple: if there is weak demand growth in high-productivity industries (if people are buying roughly the same amount of manufactured goods, even as we need far fewer people to produce them) and employment growth in low-productivity industries, we can expect average labor productivity to fall. (McAfee does not share my belief that less-skilled immigration to the U.S. ought to be reduced, but I would argue that declining average labor productivity and less-skilled immigration are related phenomena.)

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