Danial Lashkari and Jeremy Pearce

Throughout the twentieth century, steady technological and organizational innovations, along with the accumulation of productive capital, increased labor productivity at a steady rate of around 2 percent per year. However, the past two decades have witnessed a slowdown in labor productivity, measured as value added per hour worked or sectoral output per hour worked. This slowdown has been particularly stark in the manufacturing sector, which historically has been a leading sector in driving the productivity of the aggregate U.S. economy. What makes this slowdown particularly puzzling is the fact that manufacturing accounts for the majority of U.S. research and development (R&D) expenditure. Despite several recent studies (see, for example, Syverson [2016]), much remains to be uncovered about the nature of this slowdown. This post illustrates a key facet of the mystery: the productivity slowdown appears to be pervasive across industries and across firms of various sizes.