The Industry Anatomy of the Transatlantic Productivity Growth Slowdown

Abstract

By merging KLEMS data sets and aggregating over the ten largest Western European nations (EU-10), we are able to compare and contrast productivity growth up through 2015 starting from 1950 in the U.S. and from 1972 in the EU-10. Data are provided at the aggregate level, as well as for 16 industry groups within the total economy and 11 manufacturing subindustries. The analysis focuses on outcomes over four time intervals: 1950-72, 1972-95, 1995- 2005, and 2005-15. We interpret the EU-10 performance as catching up to the U.S. in stages, with its rapid growth of 1950-72 representing a delayed adoption of the inventions that propelled U.S. productivity growth in the first half of the 20th century, and the next EU-10 stage for 1972-95 as imitating the U.S. outcome for 1950-72. A striking finding is that for the total economy the "early-to-late" productivity growth slowdown from 1972-95 to 2005-15 in the EU-10 (-1.68 percentage points) was almost identical to the U.S. slowdown from 1950-72 to 2005-15 (-1.67 percentage points). There is a very high EU-U.S. correlation in the magnitude of the early-to-late slowdown across industries. This supports our overall theme that the productivity growth slowdown from the early postwar years to the most recent decade was due to a retardation in technical change that affected the same industries by roughly the same magnitudes on both sides of the Atlantic.