The Cause of Poor Productivity

The decline in productivity was preceded by a marked slowdown in the rate at which additions were made to the capital stock. As investment has weakened the growth in the capital stock has slowed, and this has clearly been the reason why productivity has been so poor. The model used for calculating GDP was changed in 2013, by treating R&D as final rather than intermediate output. The fall in tangible investment was thereby disguised through the increase in intangibles. The key message from the data is that tangible investment had been weak for many years before the recession of 2008 and that because of the measured increase in the investment in intangibles the extent of the decline has been often overlooked.