The Anatomy of the U.S. Manufacturing Productivity Slowdown: Evidence from Firms and Industries

U.S. manufacturing labour productivity growth fell from roughly 3.5 per cent per year over 1987–2007 to near zero over 2010–2022. Growth in total factor productivity (TFP) also fell to near zero over the same period. This article examines the sources of that slowdown by decomposing manufacturing productivity growth into contributions from leader and follower firms within frontier and laggard industries. We find that the slowdown is broad-based: both for labour productivity and TFP, productivity growth declined among both leaders and followers, across alternative weighting methods, and multiple industry groupings. Standard models of economic growth treat research and development (R&D) as the primary channel through which firms generate productivity growth. The broad-based nature of the slowdown raises the question of whether the translation of R&D expenditures into productivity gains has weakened. We estimate an R&D production function at both the industry and firm levels and find that the elasticity of productivity with respect to R&D is consistently larger in the earlier period than in the full sample, even as R&D expenditure has risen across firms and industries. These results suggest that the slowdown reflects declining research productivity rather than reduced innovation effort.