Will the Productivity Revolution Be Postponed?
US President Joe Biden clearly has bet on faster productivity growth to pay for his $4.1 trillion American Jobs Plan and American Families Plan. But history suggests that any acceleration of productivity growth is likely to be delayed – perhaps by decades.
BERKELEY – Productivity growth changes everything. In advanced economies with a slowly growing labor force and already-large capital stock, it typically accounts for the majority of output growth.
This means that boosting productivity is the most direct and immediate way to improve economic performance. For example, were annual growth in total factor productivity in the United States to rise to 2%, from the 0.5% experienced in the five years before COVID-19, the GDP growth rate would double from the 1.5% forecast by the International Monetary Fund for 2023-26.
Such rapid productivity growth is not unprecedented. It would almost exactly match that of the US business sector between 1996 and 2004, the so-called New Economy years when innovative digital processes were adopted in wholesaling, retailing, and finance.