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Why is Productivity Growing Faster?

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  • Martin Feldstein

Abstract

Productivity in the United States has been growing faster in the past seven years than it did in the previous quarter century. U.S. productivity growth accelerated while that in Europe declined. This paper asks why U.S. productivity growth has been faster than in the past and than in Europe. An important reason for the faster growth has been the strong incentives for managers at all levels to make the kinds of changes that can raise productivity even if that involves personal risk and discomfort. These incentives became much stronger during the 1990s for reasons that I speculate about but do not begin to understand fully. The information technology developments in personal computers and in internet and intranet communications provided a powerful means to achieve the productivity gains that everyone was seeking. But even if the new IT opportunities had not come along, the combination of strong incentives and a receptive corporate climate would have led managers to find other ways to increase productivity, although undoubtedly not by as much. European firms had neither the incentive structure nor the corporate environment supportive of making change that could involve significant job changes and layoffs. Although Europe has higher unemployment rates, it is much more difficult to lay off workers in Europe than in the United States. Reorganizing white collar work to change job assignments and locations is also much easier in the U.S. than in Europe. The future is likely to see continued strong productivity growth and perhaps even increasing productivity growth in the United States if the incentives and corporate environments remain supportive. The prospects for Europe remain uncertain.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9530.

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Date of creation: Mar 2003
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Publication status: published as Feldstein, Martin, 2003. "Why is productivity growing faster?," Journal of Policy Modeling, Elsevier, vol. 25(5), pages 445-451, July.
Handle: RePEc:nbr:nberwo:9530

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Cited by:
  1. Petr Hanel, 2004. "Innovation in the Canadian Service Sector," Cahiers de recherche 04-03, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  2. Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada.
  3. Atzeni, Gianfranco E. & Carboni, Oliviero A., 2008. "The effects of grant policy on technology investment in Italy," Journal of Policy Modeling, Elsevier, vol. 30(3), pages 381-399.
  4. Ketteni Elena & Mamuneas Theofanis & Stengos Thanasis, 2007. "The Effect of Information Technology and Human Capital on Economic Growth," Working Paper Series 03-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
  5. Sid Durbin, 2004. "Review of Workplace Skills, Technology Adoption and Firm Productivity: A Review," Treasury Working Paper Series 04/16, New Zealand Treasury.
  6. Keith Maskus, 2008. "The Globalization of Intellectual Property Rights and Innovation in Services," Journal of Industry, Competition and Trade, Springer, vol. 8(3), pages 247-267, December.
  7. Morana, Claudio, 2004. "The Japanese stagnation: an assessment of the productivity slowdown hypothesis," Japan and the World Economy, Elsevier, vol. 16(2), pages 193-211, April.

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