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occupied residential housing from and imputed owner occupied rents from in short it seems kosher the decline in in the last few years is a function of growing faster than but is still growing the figure below shows the separate growth rates of both and over the last 20 years the growth in is relatively large compared to why is growth so large this is a composite measure created by the bls that measures hours worked and is weighted by worker type education etc so it is quite possible to have very strong growth in because hours worked of those employed are higher even though the absolute number of workers is not growing rapidly regardless is falling because growth in is relatively slow but it is not negative is the slow growth in caused by any particular type of capital the bls has separate measures of equipment structures think warehouses intellectual property think software land rental housing and inventories we can look and see which if any of these are particularly responsible for the slow growth in what i ve plotted here is the weighted growth rate of each category of capital the weighting is their share in total capital income which is how the bls weights them to add up total capital growth this makes the different colors comparable in how they influenced the growth of in a given year looking over the last 4 5 years there was clearly shrinking inventories grayish green and land red during the recession since then there has been negative growth in rental housing capital yellow over the last 4 years but this is a really small effect on aggregate growth the rest of the categories are growing but if you compare them to pre 2007 rates they are all growing slowly equipment grew at about 1 8 per year for example in 2011 2013 but at 2 6 per year prior to 2007 structures grew at 0 6 per year 2011 2013 but 1 5 prior to 2007 ip grew at 2 9 2011 2013 and 5 2 prior to 2007 rental housing shrinks at 0 6 2011 2013 and grew at 1 1 prior to 2007 inventories and land growth rates are roughly similar in the pre great recession and post great recession periods the overall decline in is thus not driven by any one single category of capital even the reduction in rental housing stock is not really that meaningful in absolute size and it never was that big of a contributor to growth to begin with this is a broad based decline in capital growth rates what that indicates about the source of this change i don t know i have to think harder on that it certainly seems to indicate a secular change in investment behavior though rather than reallocation away from some category and into another so explanations that build on a common drop in savings investment rates are likely to be successful here because i love you all i extracted the bls aggregate labor input data from a pdf to see what was going on the figure shows that the bls labor input measure the blue bars contracts sharply in 2008 09 and then has grown at a relatively normal rate of about 2 5 per year since then this is driven almost entirely by changes in the growth rate of hours red bars the growth rate of labor composition green bars is basically consistently positive over this whole period but at a low rate of growth composition is capturing the quality of labor think education levels in 2011 2013 you can see that the labor input is growing at really robust rates compared to the historical series this is the strong growth that combined with the slow growth in is part of the slow growth in why does it appear that labor input is growing so robustly in the bls data this is private business sector data only excluding the government which is a huge employer and has not been expanding employment much so the private business sector labor input has been growing robustly even though the labor input at the national level may not be growing as fast the labor data and capital data seem to indicate that this is some kind of broad slow down in investment in capital goods and not some temporary adjustment by one type of capital this drop occurs exactly when the great recession ends so it seems that the changing financial conditions since then zirp credit tightness may be responsible as opposed to something like demographics if it was demographics why did all of the sudden after the gr did people decide to stop investing did all the boomers get old all at once whatever the cause let me just remind everyone that there is no a priori reason that the decline in is a bad thing a perfectly reasonable response to higher productivity is to reduce the use of inputs but it an an anomaly and it seems unlikely that everyone decided all at once that they d like to shed inputs rather than increase output whether it has a detrimental long run effect on growth is not something i can say given the data i ve got share this share on x opens in new window x share on facebook opens in new window facebook share on reddit opens in new window reddit email a link to a friend opens in new window email like loading posted in uncategorized 11 replies the changing composition of productivity growth posted on november 21 2015 by dvollrath 22 note the growth economics blog has moved sites click here to find this post at the new site after the post i did recently on profit shares and productivity calculations i ve been picking around the bls oecd and penn world tables methodologies for calculating productivity growth this has generated several interesting facts interesting in the sense that they raise even more questions than i had starting out today s post is just one of those things that i dug up and will throw out there in case anyone has some ideas about how to explain this the bls provides a measure of private business sector multi factor productivity mfp multi factor productivity is what i d call total factor productivity tfp but to be consistent i ll refer to it as mfp here because the bls is working only with information on private business sector output and inputs they can do more detailed work building up capital stocks and labor inputs the cost is that they exclude the government all labor no capital and housing services all capital no labor from their measures of output so the bls productivity number isn t going to line up exactly with a measure of productivity based on aggrete gdp capital and labor stocks that caveat aside and that caveat may be part of the explanation for the interesting fact i outline below here s the bls series on mfp growth over the long and short run i apologize for the x axis in these it was hard to get stata to format these into a readable font size the basic story is familiar mfp growth was relatively high from 1960 mfp growth has been relatively slow in the last 8 years and i d guess that when we have final numbers for 2014 and 2015 they ll look similar a decade of relatively low productivity growth why what i m going to work through here is not a causal explanation but simply an accounting one but it may be a useful accounting exercise just because it highlights that the composition of productivity growth in the last decade and in particular for the last few years has been different than in the past to get started we need to establish how exactly you measure mfp growth we can write growth in multi factor productivity mfp as the difference between growth in output per worker and growth in inputs per worker by itself this is pretty straightforward if output per worker has a high growth rate but inputs per worker has a low growth rate then it must be that mfp is growing quickly we are getting more output per worker even though we aren t adding lots of inputs per worker there are two things about this calculation that are going to be important for understanding mfp growth in the last decade is the weight on inputs in the production function which we are assuming is cobb douglas if were zero then inputs like don t matter at all and all growth in output per worker is by definition driven by growth in mfp the size of influences how much the growth rate of mfp depends on the growth rate of inputs per worker if then notice this adds to mfp growth if we have some growth in output per worker but we used fewer inputs to get it then by implication it must be that mfp was growing very quickly look at what happened to over the last few years the figure below is the growth rate of year to year from 1996 until now you can see that we have this atypical shrinking of capital per worker in this period if you extend the series out to 1961 you get a similar message it is pretty atypical for to shrink and unprecendented in the post war era for it to shrink 4 years in a row flip over to look at here i have to dip in and remind everyone that this weight is not something that we can observe we can infer it from capital s share of costs one reason working with the bls data is nice is that they specifically report capital s share of costs not just capital s share of output that s a different question for a different post take a look at what happens to in the last few years there is a clear completely out of the ordinary surge in capital s share of costs in the last few years thus the that goes into the calculation of mfp growth is rising this means that whatever is happening to input per worker is getting amplified in it s effect on mfp growth combine those two facts and rising what do you get you get a distinct positive effect on mfp growth the composition of mfp growth is different than it used to be what we ve got going on in the last few years is that mfp growth reflects our economy using fewer inputs to produce the same output rather than producing more output using our existing inputs you can see the difference in these figures i ve plotted blue bars and red bars for each year the difference between these bars is mfp growth up until about 2005 we generally had high input per worker growth mfp growth allowed us to use inputs more efficiently and we took advantage of that by using our increasing inputs to increase output by a lot in the last few years though we have taken advantage of mfp growth by shedding inputs while increasing output only a little those red bars below zero from 2009 2013 all imply positive mfp growth there is nothing inherently right or wrong about this change but it is different a good question is whether this is something that represents a temporary change or whether we ve entered on a long run path towards lower and lower input use while output per worker only grows slowly from a pure welfare perspective there is nothing to say that lowering input use makes us worse off we have to provide fewer inputs which is nice but an economy that is shedding inputs rather than expanding output sure seems like a different animal what does it imply for asset prices for example if we are actively letting capital stocks run down it is one of those asset stocks that may play a role in explaining what is going on here by the way remember that caveat i made above the bls excludes housing services from it s measure of output and by housing services i mean the implicit flow of rents that home owners receive however the bls does according to their documentation include residential capital as part of their measure of the decline in housing investment since 2006 07 is going to actively drag down perhaps so much that it explains most of the i can t find the detailed breakdown from the bls to be sure if the decline in housing stock is responsible for then it is implicitly responsible for a large part of the measured mfp growth that we have enjoyed in the last few years will that continue it s hard to think of a decline in the housing stock as a permanent state of affairs so it may be a temporary deviation as an aside this could imply that measured mfp growth in the early 2000 s may have been lower because of the run up of housing capital in that period regardless it seems odd that the bls uses residential capital in their calculation of while excluding housing services from their calculation of i d love to see some kind of alternative series of mfp growth where residential capital is excluded from but if the change in the nature of mfp growth is true regardless of how we treat residential capital then there is something very odd going on remember i didn t make any causal claim solely an accounting claim the composition of mfp growth has changed demonstrably and now reflects declining input use per worker could it represent a change in the kind of technological change that we pursue or are exposed to are we now inventing things to eliminate the need for inputs where before we used to invent things that made inputs more valuable if yes that represents a real change from several decades and probably even longer of productivity growth share this share on x opens in new window x share on facebook opens in new window facebook share on reddit opens in new window reddit email a link to a friend opens in new window email like 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