Sectoral Productivity Slowdown

In this paper an attempt is made to answer two questions: 1) What set of factors explains the recent slowdown of the U.S. aggregate labor productivity, and 2) whether the same set of forces account for the slowdown of sectoral productivity growth as well.We specify a model which relates measured labor productivity growth to capital/labor ratio, level and rate of change of utilization, stock of R & D, and the rate of disembodied technical change.The model is estimated using sectoral and aggregate data for the period 1949-1978.The results of the estimation suggest that the pattern of aggregate productivity growth can be explained by the growth of capital/labor ratio the gap between potential and actual output growth paths, the change in degree of utilization, the growth of stock of total R & D, and the time trend.In fact, both at the aggregate and sectoral levels, these factors account fairly well, first for the growth and then for the subsequent slowdown of labor productivity in the postwar period.To be sure, in some specific industries, the performance of the model could be improved.However, the overall conclusion reached is that the slowdown in growth of capital formation, the inability of the economy and various sectors to grow at their normal growth rates, and the slowdown in rate of technological change are some of the main reasons for the observed productivity slowdown of the recent years.