Post War World II Era,

¶ … post War World II era, the United States saw an almost three fold increase in its productivity for the next thirty years. However, statistical analysis has shown that productivity growth slowed within the United State the rest of the industrialized world during the 1970s to the mid 1990s. Many theorists have attempted to explain both the causes and the consequences of the production slowdown. However, recent trends towards resurging productivity growth seem to have thrust this issue into the center of national attention once again. The following analysis hopes to explore the many different causes and consequences of the productivity slowdown and how this will implicitly affect industrialized world within the next decade.

There has been enormous debate into the specific causes of the U.S. productivity slow-down and the recent resurgence in productivity growth. Experts differ on the specific causes by presenting a myriad of causes; however the one area that no one disagrees on is that a productivity slowdown did exist.

An analysis of this data shows that substantial decreases within this time period of productivity decreases. One famous cause stated by Professor Fischer within the 1988 symposium on the productivity slowdown is the rise of oil prices which decreased the capability of a highly productive society to maintain its current pace. Another suggestion forwarded is that it results from a slowdown in the rate of new technology production. An alternative explanation that has been forwarded in the modern debate is also very persuasive, that demographic change as baby boomers entered the market caused this specific slowdown. The below analysis will look at all of these causes in greater detail.

One of the often cited reasons for the productivity growth slowdown is the impact of high prices for oil. Oil shocks have been a prominent element in economist's views on productivity and overall growth patterns. It is not only attributed as a causal factor for productivity slowdowns, it also is known to cause a phenomenon of "stagflation" where high inflation is accompanied by high unemployment. When during the 1970s and 1980s, overall productivity fail to just.31% it was reflective of a period that experienced severe oil shocks. Oil prices have a distinct impact on productivity because it is used as the vehicle to power every segment of the economy and industry. With the severe oil shocks, costs roses unexpected and so did overall complications in relation with oil shortages. As a result, companies geared their productivity to fit with emergency oil situations thus limiting their ability to maximize productivity. This growth trend is also reflective of the impact that oil shortages have on consumer willingness to overcome shortages in flow and ebb of social and political institutions as well. The overall implication for social and political economies is that they have transformed from a normative state into an emergency state. This is one of the principle causes of the productivity slowdown according to many experts.

The 1970s represented the entry of the baby boomers into the labor force demographic. This has been explained by many economists as a primary reason for the slowdown in productivity growth. The idea that baby boomers have an implicit affect on productivity is not a new idea, in fact a glance at Mincer regressions would immediately show that increases within experienced workers results in higher wages and greater productivity. When the baby boomers entered the labor force, they immediately diluted the experience level of the average worker within the workforce. The decrease in work experience cannot be documented or reflected through graphical interpretation, but it would be a sound explanation for what has occurred between 1970 and 1995 on the above graph.

Although the baby boomer effect is intuitively logical, it has many holes that are unaccounted for, most substantially, that experience does not have that severe of an impact on productivity, and its impact could be understood as relatively modest. In addition, economists such as Baily and Gordon note that the baby boomer generation was much more educated than the previous generation, which suggests that their transaction would have been easier as well. These criticisms are valid; however recent studies have shown that an increase in the proportion of experienced workers has an "order of magnitude" impact upon productivity. Thus, the effect of having plethora young and inexperienced workers with the escalation of retirements from the past generation may very well be the reason for the downturn in productivity growth.

Another cause that is often cited for the productivity slowdown is that evolution of technology and the changing nature of technology implementation. Contrary to many modern beliefs, technology production did not slowdown in the conventional sense during this economic period. Rather, the implementation of technology decreased because of a myriad of factors. Traditional methods of technology implementation are reflective of industries, however during the 1970s to 1990s; the changes within technology are in areas of sophisticated electronics and technology integration. As a result, managers of that time period were ill prepared to adapt to these changes, without good management the implementation of new technologies became extremely difficult. Weinberg argues that microeconomic evidence exists which indicate age matters in the adoption of technology, changes within the structural elements of technology growth could have had a negative impact on productivity growth. With the entry of baby boomers into the marketplace, management structures changed as well to include young managers. Secular changes within the U.S. economy increased the proportion of managers to workers, as a result, managers were chosen form a smaller and smaller pool of older workers. The implication is that their skill level was severely deficient in many was, thus contributing to the drop in management quality during this time period. When baby boomers grew in age and maturity, figures reverted themselves and management experience increased, this could account for the resurgence in productivity in the last half decade.

Much of this argument in fact can be seen in the current resurgence within productivity growth. As managers grow in their competencies and information technology systems become standard across industries, technology has increased the productivity of Americans by leaps and bounds. Two factors are attributed to the current increase in productivity, the falling costs of information technology capital, and the ability of information technology to improve productivity in all sectors. The implication of this research is that a comparison between the previous economic period and the current resurgence suggests that technology adoption was a key factor for the productivity slowdown.

Another argument about the productivity growth slowdown is that it is a statistical mirage, in that in actual fact, there is no such thing as a drop within productivity growth across time periods. In a study conducted by Michael R. Darby, he contrasts the productivity levels of three periods, 1900 to 1929, 1929 to 1965 and 1965 to 1979. He articulates that while a graphical representation of productivity patterns would show two periods of rapid growth in private employment and hours worked, a closer statistical analysis shows that this supposed productivity growth was a mirage. He argues that during periods were productivity was extremely high and low, substitutions within labor forces occurred as quantity replaced quality. The basic implication of his research is that since productivity is for the large part measured by increases within jobs and hours worked, this metric is a reflection of quality workers being replaced by a large quantity of less qualified workers. After adjusting for age, sex, immigration and education within private employment there is essentially no difference that is observed among the average quality adjusted productivity growth rates. This research has substantial implications in that a productivity slowdown may not have occurred at all. In fact, statistical metrics should that the reason variations within productivity growth occurred from the 1970s to the 1990s may be explained through price-control induced biases in reported deflated output.

Another cause of the supposed productivity slowdown has been attributed to investment in technology infrastructure. An examination of infrastructural investments show that on an industry wide level lower investment was made. This change within infrastructural investment change has implications for worker productivity because it decreased the ability of workers to take advantage of new innovations within the field. Without a steady increase in technology implementation it meant that more workers were performing low skills-based work, which impacted the average work productivity of individual employees. Technology adoption rates are relatively low within these established areas which meant that overall assessment of service levels continue to go on a decreasing trend. Social and political understanding of economic factors implies that government institutions continue to advocate sophisticated change. In general, the insecurity of industries as a result of unexpected oil shocks along with the increase in the workforce allowed them to minimize technology investments. The overall impact is to decrease the productivity level substantially.

The implications of the slowdown of productivity growth could be severe and detrimental to the economic interest of the United States. The key metric is not necessarily that the United States is decreasing in productivity, but rather that they is a slowdown in comparison to other OCED and developing nation competitors. The rise of productivity within competitors to the United States means that overall import/export balance will be severely altered. This can already be observed over the lopsided balance of trade for the United States, whose trade deficit will exceed 100 billion once again this year. When there is a comparison decrease in productivity, the economic impacts are both short-term and long-term. In the short-term the strength of the dollar will depreciate against other currency. This is already happening as the dollar has depreciated within the past five years against the Euro, and as the productivity trends move against the United States this will become even more evident in the years to come. With respect to a broad basket of currencies that include the rise of Asian currencies, this will only mean that the dollar will lose strength over the next few years. The long-term implications are that the United States will be out-competed on a myriad of fronts that could dramatically alter its current economic prospects. With the rise of productivity in Eastern Europe as well as the East Asian sector, this will mean that trade will become more lopsided and American exports will decline. All of these should have negative implications on overall U.S. growth within the next few generations.

Recovery from the productivity slowdown must come from technology implementation; this has already been witnessed within the past five years. According to recent metrics, productivity rates have increased by substantial growth in recent years. These episodes of accelerated growth can be attributed in increased investments made by companies into their infrastructure and their investment specific technological changes that have increased worker productivity. Economic models suggest that due to the increased integration of information technology systems as well as other means of technology implementation, the productivity slowdown of the 1970s are over. However, the same metrics show that because technology investments now are only a reflection of a "snap-back" effect that is occurring because of previously low levels of investment. The long-term implications of this model is that productivity growth will remain at a moderately accelerated rate for the near-term future, however further growth within this sector will be wholly dependent upon investment in technology on an industry wide level.