Raising productivity.

As has been the case in the past, productivity growth slowed at the beginning of the 2001 recession and sped up again once the recession was over, according to a recent report in the Current Issues in Economics and Finance series published by the Federal Reserve Bank of New York. But, note authors Dale W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh, "the drop-off in productivity in 2001 was not as large as it had been in earlier recessions and the productivity recovery was much stronger." As they are quick to point out, this created some problems for business cycle analysts who had to deal with the differing trends in output and employment growth as they sought to identify the trough of the recession.

Using the standard techniques of growth accounting, Jorgenson, Ho, and Stiroh attribute much of the recent vigorous growth in productivity to accelerated capital deepening attributable to information technology and to a rebound in the rate of total factor productivity growth to about the rate that was recorded in the 1960s and very early 1970s. The rebound in total factor productivity itself reflected a disproportionate contribution from information technology: Despite accounting for only 5 percent of aggregate output, information technology producers accounted for about 35 percent of the increase in total factor productivity.

The authors project a continuation of these trends through 2014. Their base-case scenario implies an annual average growth in productivity of about 2.6 percent. This can be compared to the 2.2-percent per year rate of productivity growth the same team of authors projected in a report released in 2002. The authors attribute their revision to a projected continuation of recent productivity trends, particularly in the high-tech sectors, offset only slightly by a projection of slightly higher "drag" on productivity growth from demographic trends. Jorgenson, Ho, and Stiroh conclude modestly that "there is little evidence to suggest that the technology-led productivity resurgence is over or that the U.S. economy will revert to the slower pace of productivity growth observed in the 1970s and 1980s."