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Will the Productivity Revolution Be Postponed?

Summary:
US President Joe Biden clearly has bet on faster productivity growth to pay for his .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. Waking the Norwegian Green Giant Sustainability Now JAN KARE NESS/AFP via Getty Images Will Corporate Greed Prolong the Pandemic? PS OnPoint Saul

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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...

Barry Eichengreen
Barry Eichengreen is Professor of Economics at the University of California, Berkeley; Pitt Professor of American History and Institutions at the University of Cambridge; and a former senior policy adviser at the International Monetary Fund.

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