Another piece of the productivity puzzle

09/02/2012 Comments Off on Another piece of the productivity puzzle

The latest American Economic Review has an article looking at IT, management, and productivity (alternative pdf here, 2007 working paper here). They are working to explain productivity differences between the US and Europe, and produce lessons for NZ. They observe:

US GDP per hour growth accelerated from 1.3% 1980-1995 to 2.2% 1995-2006, whereas in Europe productivity growth slowed from 2.3% to 1.4%.

Their explanation:

US people management practices were a reason for this difference as has been suggested by Blanchard (2004) and others.

The finding is important for NZ. Here are some general observations about our economy:

  • relatively low labour productivity growth
  • relatively low investment, both capital shallowness and low R&D expenditure
  • wide dispersion in managerial quality, with a long tail of low performers.

(And apologies — I would find the links but I’m a bit rushed this morning.)

So — not only do low investment and poor management each affect labour productivity, but there is also an interaction term. The impact is magnified. Low productivity growth starts to be less of a puzzle to explain, although it is still hard to know what to do about it.

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