And yet productivity growth slowed almost everywhere after the Global Financial Crisis. Advanced economies slowed down to a crawl – below 1% per year on average
The post-crisis productivity growth slowdown in advanced economies has been widely discussed, but it can be almost fully explained by two factors alone: the end of two manufacturing waves, and a large investment slowdown (this chart and next ones show the US as an example)
First, the two manufacturing waves that boosted pre-crisis productivity growth but ended after it: Wave 1) Moore’s law had a large positive impact on computer electronics in the late 90s and early 2000s, but this effect slowly waned over time;
Wave 2) offshoring led to a large decline in manufacturing employment, but this employment decline reversed after, while capital investment growth remained stable all along
Second, investment across advanced economies quite simply dropped precipitously, leading to a decline in the growth rate of capital per worker
Turning to emerging economies, we looked across 5 dimensions and disentangled what sets apart fast-lane economies. In a nutshell, they boosted capital investment, built on that investment to urbanize effectively, grew the productivity and size of the service sectors, and increased the sophistication and global interconnectedness of manufacturing
Two quick deep-dives. It is well-known that the share of service-sector jobs has been expanding globally, but fast-lane economies were also surprisingly good at raising the productivity growth rate of those service sectors
Manufacturing was also key to raise productivity growth. Fast-lane economies’ manufacturing exports had higher and increasing economic complexity. The share of manufacturing jobs, however, grew in very few cases – and mostly where it was very low to begin with
We end the report with some reflections on the challenges and opportunities of the next era. We discuss the macroeconomic context; the potential of new technologies, including AI; shrinking and aging populations in many economies; new ways of working such as hybrid or remote work; the growing importance of services; trade tensions and supply-chain disruptions; and energy costs
There is a lot more in the report. Here is the link again: mckinsey.com/mgi/our-resear… Recommended!
Cc @Noahpinion @BaldwinRE @bart_ark @Isabel_Schnabel @erikbryn @amcafee @johnvanreenen @danielrock @DianeCoyle1859 @DinaPomeranz @I_Am_NickBloom @AlecStapp @DKThomp @JosephPolitano @valentinaromei @martinwolf_ @jburnmurdoch @MESandbu @adam_tooze @AdamPosen @ojblanchard1 @jasonfurman @LHSummers @MaxCRoser @michaelxpettis @mattyglesias @elerianm
@MCanalN @Noahpinion @BaldwinRE @bart_ark @Isabel_Schnabel @erikbryn @amcafee @johnvanreenen @danielrock @DianeCoyle1859 @DinaPomeranz @I_Am_NickBloom @AlecStapp @DKThomp @JosephPolitano @valentinaromei @martinwolf_ @jburnmurdoch @MESandbu @adam_tooze @ojblanchard1 Thanks @MCanalN How do you measure seevice sector productivity growth across this range of economies?