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Authors Dale W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh update their analysis of U.S. productivity growth with recent data and conclude that private sector productivity will grow at a rate of 2.6 percent per year for the next decade, a significant increase from their 2002 projection of 2.2 percent.
Despite a series of negative shocks that began with the bursting of the NASDAQ bubble in 2000 and continued through the current spike in energy prices, productivity growth has remained strong and even accelerated in recent years. From 1995 through the second quarter of 2004, productivity grew at a rate of 3.1 percent per year, more than twice the average rate of the previous two decades.
According to Jorgenson, Ho, and Stiroh, information technology remains critical in the U.S. productivity resurgence. The authors cite the gains that come from technological progress in the industries that produce IT equipment and software as well as the ongoing shift by firms toward investment in relatively cheap and highly productive IT equipment. On the negative side, the authors project slower growth in labor quality.
The authors also note that the future of productivity growth depends critically on factors such as the evolution of semiconductor technology and the composition of business investment, which are difficult to predict. Nonetheless, they maintain there is little evidence to suggest that the technology-led productivity resurgence is over or that the U.S. economy will revert to the slower pace of productivity growth observed in the 1970s and 1980s.
Dale W. Jorgenson is the Samuel W. Morris University Professor at Harvard University; Mun S. Ho is a visiting scholar at Resources for the Future, an independent research institute in Washington, D.C.; Kevin J. Stiroh is an assistant vice president in the Banking Studies Function of the Bank’s Research and Statistics Group.