Unbalanced Growth Slowdown

Unbalanced growth slowdown is the reduction in aggregate productivity growth that results from the reallocation of economic activity to industries with low productivity growth. We show that unbalanced growth slowdown has considerably reduced past U.S. productivity growth and we assess by how much it will reduce future U.S. productivity growth. To achieve this, we build a novel model that generates the unbalanced growth slowdown of the postwar period. The model makes the surprising prediction that future reductions in aggregate productivity growth are limited. The reason for this is that the stagnant industries do not take over the model economy.