The Productivity Growth Slowdown: Diverging Trends in the Manufacturing and Service Sectors

Continuing gains in labor productivity are essential to keep real wages and the U.S. standard of living from stagnating. After a period of strong gains in the 1960s, the average growth rate of productivity slowed substantially in the early 1970s. In the following years, productivity continued to grow slowly despite rapid technological advances in such areas as computers and digital communications. Analysts have proposed differing explanations for the productivity slowdown and for the failure of productivity growth to rebound in recent years. Most explanations focus on aggregate factors, such as overall saving and investment rates or the quality of the labor force.> Kozicki approaches the productivity growth slowdown from a different perspective. In particular, she decomposes the slowdown into contributions by broad sectors of the economy, focusing on the two largest sectors manufacturing and services. Doing this reveals that the main factor accounting for the productivity slowdown has been stagnating productivity in the service sector. An accompanying and reinforcing factor has been the strong employment growth in services relative to manufacturing.