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Productivity Discrepancies

2002-04-24

The rate of measured economic productivity growth in the United States accelerated from 1.5 percent per year over 1990 to 1995 to 2.5 percent per year over 1995 to 2000. Or did it? Official productivity statistics are fundamentally based on the "production" side of the national income and product accounts. But there is another, "income" side of the national income and product accounts that is also used to measure economic growth. The "production" and "income" sides should tell the same story: a few technical adjustments aside, they are supposed to be identical by design. Their difference is the "statistical discrepancy"--a measure of the extent to which the two sets of measurements of what is supposed to be the same thing disagree. And this statistical discrepancy grows large in the late 1990s.

Suppose you look not at the production but at the income side. You find that the acceleration of economic growth is considerably faster. The acceleration of economic growth from 1990-1995 to 1995-2000 is not 1.0 but 1.6 percentage points per year. That means that the "new economy" is more than half again as large by the income-side measurements as by the product-side measurements. That means that today the U.S. economy is some 3.6% bigger according to the income side than it is according to the product side.

This large statistical discrepancy is unprecedented. Before 1995 the income and product side measures tended to run remarkably in harness.

Which of the two measures gives the correct picture of what was going on in the second half of the 1990s? I don't know. Neither does anybody else that I know. Martin Baily, who taught me all this, recommends splitting the difference between the two measures. That seems to me to be a good thing to do.


Previous Handouts

2002-04-17: The Course of the Recession and What It Tells Us About the New Economy
2002-04-10: Productivity Growth
2002-04-03: SPRING VACATION
2002-03-27: America's Rebound from Recession
2002-03-20: World Economic Forecasts
2002-03-13: Population Growth (Chapter 5: Growth Facts)
2002-03-06: Capacity Utilization (Chapter 2: Economic Data)
2002-02-27: U.S. Household Incomes (Chapter 2: Economic Data; Chapter 5: Growth Facts)
2002-02-20: Unemployment in the 1990s (Chapter 2: Economic Data)
2002-02-06: U.S. Monetary Policy (Chapter 13: Stabilization Policy)
2002-01-28: GDP in 2000 and 2001 (Chapter 13: Stabilization Policy. Chapter 2: Economic Data)
2002-01-21: The Course of the U.S. Recession (Chapter 13: Stabilization Policy)
2002-01-07: Argentina's Crisis (Chapter 15: Exchange Rate Regimes)
2001-12-10: The U.S. Recession (Chapter 2: Principal Macroeconomic Variables)
2001-12-03: The Overvalued Euro (Chapter 3: Exchange Rates; Chapter 15: Exchange Rate Regimes)
2001-11-26: Net Exports, the Exchange Rate, and an IS-Led Boom (Chapter 11: Balance of Payments; Chapter 15: Exchange Rate Regimes)
2001-11-19: The European Central Bank and Its Monetary Policy (Chapter 13: Stabilization Policy)
2001-11-12: Central Banks Worldwide Cut Interest Rates Again (Chapter 13: Stabilization Policy)
2001-11-05: Effects of the Collapse in Spending on Durables (Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-28: What Kind of Stimulus (Chapter 13: Stabilization Policy. Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-21: Federal Reserve Reaction to the Terror Attack on the World Trade Center (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)
2001-10-14: Why a Stimulus Package Might Be Desireable (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)


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