Opinion – IMF Working Paper: U.S. Total Factor Productivity Slowdown: Evidence from the U.S. States

English: USA. Educational Attainment of the Po...

English: USA. Educational Attainment of the Population 25 Years and Over by Age: 1947 to 2003. (Photo credit: Wikipedia)

English: Educational attainment in the United ...

English: Educational attainment in the United States (Photo credit: Wikipedia)

The educational attainment of employed civilia...

The educational attainment of employed civilians age 25 to 64 according to occupational field. (Photo credit: Wikipedia)

This IMF working paper provides some excellent analytical evidence into the slowing of Total Factor Productivity (TFP) in the US since the mid-2000s. The paper concludes that:

TFP  growth reflects a loss of efficiency or market dynamism over the last two decades. There are large differences in production efficiency across U.S. states, with the states having better educational attainment and greater investment in R&D being closer to the production “frontier.”

The analysis of TFP trends across U.S. states suggests that there is scope for policies to tackle inefficiencies and help boost productivity. Significantly, the findings show that the slowdown in TFP has not been confined to IT-producing or IT-intensive user states, arguing that the pace of technological progress has remained broadly unchanged since mid-1990s.

For me, this is an important piece of research highlighting that perhaps the fear of technology and man being replaced by machine has been overdone. The evidence highlighs that better educational attainment and greater investment in R&D is significant in states achieving higher TFP.

This research should be generalizable to other advanced and developing countries. For example, countries like the UK, need to redress falling education standards compared to peers in benchmarking studies. Similarly, fiscal incentives in R&D is required to increase innovation. What about triple tax credits for approved R&D investment? More broadly, across Europe, EU policies need to focus on improving education and rewarding investment in R&D – focus on austerity has probably been overplayed.

Young people and parents need to reflect on these findings too. Despite student debt being at record levels, education still really matters. The challenge is to choose the right subject and educational establishment. Also extra curricular activities matter to potential employers. Young people who neglect educational achievement will increasingly be marginalized and at the mercy of global competition, especially from low-cost countries. There are probably other factors at play here too, like lifestyle, health and diet.


One response

  1. I share most of Dr Alf’s prognosis.

    This is important research and it tells us that education matters more than ever for the future job prospects of the young whether they are in America or elsewhere.

    The study is, of course, looking at the period from 2000 up to the present day and because it is looking at worker productivity and education on a historical basis it has not focussed on AI, robotics,automation ,augmented intelligence, cybernetics ,nanotechnology and 3D printing all of which are at a tipping point stage.

    By 2019, just 3 years from now AI will have caught up with human intelligence and the Google dream of placing an expert system onto a chip and injecting it into the human brain will have either come true or be very much closer.

    For this, we have the prediction of Ray Kurzweil, Google’s CTO and Chief Futurist who is also a leading proponent of the Transhumanist Movement.

    A firm in California is already printing houses and already it has 3 Chinese competitors.
    Traditional builders, decorators, painters, carpenters and people who used to be the product of the old Secondary Modern schools will not be needed in this Brave New World and since most of them were incapable of attaining the old style GCE’s that were needed to get into Grammar schools as Dr Alf may dimly remember them from his schooldays they are going to have to become craftsmen, learn a new profession or become marginalised.

    Pareto’s 80/20 rule is brutal in its application and cannot be bucked.

    This means that the vast majority of people will not be able unless they are given a lot of help and augmented intelligence to keep up with what is going on.

    Dr Alf will remember more recent times when as an experienced interim manager, he and others tried to tell interim providers and other interims times had changed.

    Our words fell on deaf ears with the result that today less than 50% of even genuine interims are on assignment whilst the rest live vicariously, growing older, poorer and less hopeful of that fateful telephone call which for some will never come.

    The Chinese leadership grasped this essential truth years ago which is why through their “Go out /bring back in” programme they are getting people to leave China and start businesses in developing countries whilst keeping their best and brightest at home after a dual university education(one in China and the other in a Western university).

    Now is a time for waking up and reinvention otherwise the future will neither be “Bright nor orange”.

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