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Problems in the Measurement and Performance of Service-Sector Productivity in the United States

In: Productivity and Growth

  • Robert Gordon

    (Northwestern University)

Not only has U.S. productivity been poor by international standards but it is highly heterogeneous at the disaggregated industry level. Manufacturing has continued to do well while nonmanufacturing has done poorly, especially the services. Within services, apparel retailing has done well while food retailing has done badly; railroad productivity has accelerated while airline productivity has decelerated. This dispersion of performance argues against a single over-arching explanation of the slowdown. The recent shift to chain- weighted productivity measures substantially increases the magnitude of the U.S productivity slowdown and shifts it later in time. Performance in the 1970s is better than previously thought, while performance in the 1990s has been substantially worse. In addition, productivity performance in each decade has been understated due to an upward bias in the Consumer Price Index This 'CPI bias' has led to an uneven understatement of productivity change, with major errors in manufacturing, trade, and some services. The paper emphasizes two substantive causes of the productivity slowdown that go beyond measurement errors. First, some industries (e.g. electric utilities and airlines) reached a technological frontier in which the sources of earlier rapid productivity growth were exhausted. Second, slow productivity growth in food retailing and some service industries reflects a feedback from the weak bargaining position of U.S. labor. Weak unions, a falling real minimum wage, and immigration have combined to keep real wages in U.S. service industries relatively low, and this encourages overhiring by the standards of some other industrial nations.

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This chapter was published in: Palle Andersen & Jacqueline Dwyer & David Gruen (ed.) Productivity and Growth, Reserve Bank of Australia, pages , 1995.
This item is provided by Reserve Bank of Australia in its series RBA Annual Conference Volume with number acv1995-08.
Handle: RePEc:rba:rbaacv:acv1995-08
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  1. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1.
  2. Diewert, Erwin, 2007. "Index Numbers," Economics working papers diewert-07-01-03-08-17-23, Vancouver School of Economics, revised 31 Jan 2007.
  3. W. Erwin Diewert, 1995. "Price and Volume Measures in the System of National Accounts," NBER Working Papers 5103, National Bureau of Economic Research, Inc.
  4. Zvi Griliches, 1992. "Output Measurement in the Service Sectors," NBER Books, National Bureau of Economic Research, Inc, number gril92-1.
  5. Robert J. Gordon, 1995. "Is There a Tradeoff between Unemployment and Productivity Growth?," NBER Working Papers 5081, National Bureau of Economic Research, Inc.
  6. Zvi Griliches, 1998. "Productivity, R&D, and the Data Constraint," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 347-374 National Bureau of Economic Research, Inc.
  7. Martin Neil Baily & Robert J. Gordon, 1988. "The Productivity Slowdown, Measurement Issues, and the Explosion of Computer Power," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 347-432.
  8. Robert Ford & Pierre Poret, 1991. "Infrastructure and Private-Sector Productivity," OECD Economics Department Working Papers 91, OECD Publishing.
  9. Zvi Griliches, 1992. "Introduction to "Output Measurement in the Service Sectors"," NBER Chapters, in: Output Measurement in the Service Sectors, pages 1-22 National Bureau of Economic Research, Inc.
  10. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557.
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