There are Two Productivity Puzzles

Patrick Schneider at Bank Underground (at the B of E):

There are two productivity puzzles: Much has been written about the productivity puzzle. But there are actually two puzzles apparent in the data – one in the level that hit at the crisis and the other in the growth rate, which is a more recent phenomenon – and they could be driven by completely different sources. Distinguishing between the two puzzles is important precisely because of these potential differences – if anyone analyses the puzzle as a whole looking for the force driving it, the actual underlying variety will confound our estimates of the relative importance of these drivers.

In this post I discuss:

1. what people mean by the productivity puzzle, usually a percent deviation from the pre-crisis trend;
2. how I think of it as actually two puzzles: one in the level and the other in the growth rate;
3. and why this distinction can be important, using the example of a simple growth accounting decomposition of productivity growth into capital deepening and technological advancement.

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