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.