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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.

Suggested Citation

  • Martin Feldstein, 2003. "Why is Productivity Growing Faster?," NBER Working Papers 9530, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9530
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    Cited by:

    1. Michael Storper & Michael Manville, 2006. "Behaviour, Preferences and Cities: Urban Theory and Urban Resurgence," Urban Studies, Urban Studies Journal Limited, vol. 43(8), pages 1247-1274, July.
    2. 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.
    3. Dean Parham, 2004. "Sources of Australia's Productivity Revival," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 239-257, June.
    4. 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.
    5. Hian Teck Hoon, 2006. "Effects of Technological Improvement in the ICT-Producing Sector on Business Activity," Macroeconomics Working Papers 22437, East Asian Bureau of Economic Research.
    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. Petr Hanel, 2004. "Innovation in the Canadian Service Sector," Cahiers de recherche 04-03, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    8. Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada.
    9. Ketteni, Elena & Mamuneas, Theofanis & Stengos, Thanasis, 2011. "The Effect Of Information Technology And Human Capital On Economic Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 15(5), pages 595-615, November.
    10. Hoon Hian Teck & Edmund S. Phelps, 2006. "ICT-Producing Sector on Business Activity," Working Papers 07-2006, Singapore Management University, School of Economics.
    11. Sean Archer, 2007. "The International Literature on Skills Training and the Scope for South African Application," Working Papers 07124, University of Cape Town, Development Policy Research Unit.
    12. Sid Durbin, 2004. "Review of Workplace Skills, Technology Adoption and Firm Productivity: A Review," Treasury Working Paper Series 04/16, New Zealand Treasury.
    13. Adel Ben Khalifa, 2018. "Government Supports and Technology Adoption: Evidence from Tunisia," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 43(4), pages 41-70, December.

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

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