How Trump plans to boost wages
COUNTRIES grow richer when they learn how to produce more valuable
stuff per person. Sadly, many advanced economies seem to have lost the
knack. Except for a brief spurt around the turn of the millennium,
productivity has grown painfully slowly in rich countries over the last
four decades (see chart)—a factor, economists reckon, that has
contributed to stagnant pay. Labour productivity in America fell at a
startling 2.2% annual pace in the fourth quarter of 2015; growth of 0.6%
for the year as a whole was better, but hardly impressive.
Orthodox explanations for the problem tend to fall into one of three
categories. The first, championed by Robert Gordon, an economist at
Northwestern University, suggests humanity has run out of big ideas.*
Recent technological advances, the argument goes, lack the
transformative power of the inventions of the 19th and early 20th
centuries. Electricity and indoor plumbing, in Mr Gordon’s view, altered
lives in a far more fundamental way than the digital revolution has
managed. We were promised flying cars, to paraphrase Peter Thiel, a
venture capitalist, but wound up instead with social networks.
There are several inconsistencies in this story, however. Recent
developments in artificial intelligence and robotics look at least as
transformative as the gains in software and computing that powered the
productivity boom of the late 1990s. The breadth of the productivity
slowdown also poses a problem for Mr Gordon’s thesis. Productivity
growth has slumped not just in the rich world, but also in developing
countries such as Mexico and Turkey, which should be able to boost
efficiency easily by adopting the productivity-boosting technology that
is already in use in wealthier places. Some optimists argue instead that the problem is one of measurement.
Technological progress often raises productivity in ways that
statistical agencies struggle to detect. The tumbling cost of digital
media (vast amounts of which are in effect free) subtracts from measured
GDP, for example. Meanwhile, huge improvements in the quality of goods
like smartphones can be difficult for statistical agencies to capture.
Yet mismeasurement probably plays only a small role in the slowdown.
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