Breaking the Mold: the U.S. Productivity Miracle

Citizen Economists

By Cheryl Grey

All other things being equal, high productivity growth—a rise in the ability to create more with less of anything—remains the central driver for a nation’s economy, and United States productivity is world renowned (and envied). In the 1990s, productivity growth in many other economically-developed nations remained flat or even decreased; for example, in Spain productivity in service-related industries slowed -1.2% between 1995 and 2004. But in what some economists are calling a productivity miracle, the U.S. managed a 1.3% acceleration in the same field at the same time.

This productivity miracle is even more impressive considering the concept of convergence. Major technological advances generally happen in economically developed regions, particularly the ones such as the U.S. and the Eurozone that sponsor fundamental (non-patentable) research. Because it’s easier to mimic somebody else’s success rather than create your own, developing countries tend to copy the innovations of their more advanced neighbors and ride on their technological coattails, leading to higher rates of productivity growth. However, as these nations become richer themselves, their growth rates tend to slow to match everyone else’s. So while productivity growth rates are high in China (6.4%), Russia (3.7%), and South Korea (3.2%), it’s because they’re toward the beginning of that convergence pipeline, with a long row to hoe before they begin to slow.

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