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Why productivity growth slowed—and how we could turn things around

February 23, 2018

A perfect storm of economic and technological factors has produced America’s historically low productivity gains. So says new research by the consultancy firm McKinsey, which also offers some ideas for getting things back on track.

Economics 101: When productivity—the amount of economic gain created per hour of labor—increases, so do wages and standards of living. Demand for goods and services also increases. Productivity is important, but its growth has slumped in the US recently.

What went wrong: McKinsey suggests that three main factors brought about America’s current productivity-weak but job-rich economy. They are:

     1. Waning of the productivity boom that began in the 1990s

     2. After-effects of the financial crisis

     3. Failure of digitalization to produce the benefits we hoped

What now? The report says productivity could grow by 2 percent per year—if we double down on stimulating competition, go heavy on reskilling, and invest in digital technologies. In reality, that means doing things like digitizing the public sector, investing in research, and getting small firms to adopt new technology. Easy, right?

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