September 06, 2002
American Labor Productivity Growth Trends

Labor Productivity Growth Trends Bill Nordhaus just gave a paper on U.S. productivity growth. One problem with the subject is that the year-to-year data are so noisy: errors in measuring output this year, errors in measuring output last year, errors in measuring hours worked this year, and errors in measuring hours worked last year all disturb the numbers reported for any given year. As a result, such papers almost always divide the time period up into a few chunks--1977-1989; 1989-1995; 1995-2001--and simply compare averages over those chunks. But the time series is considerably richer. So while Bill was talking, I found myself (a) taking the annual data, (b) adjusting productivity growth for the business cycle (for productivity growth jumps by 0.39 percent for each percentage point increase in this year's unemployment rate, and falls by 0.77 percent for each percentage point increase in last year's unemployment rate), and (c) taking a centered five-year moving average (using our current forecasts for 2002, and taking a truncated four-year not-centered moving average for 2001). The resulting series--the "actual" and the "trend"--are plotted as the green and the red line in the figure below: As a measure of the underlying pace of potential economic...

Posted by DeLong at 05:28 PM