The Enigma of US Productivity Slowdown: A Theoretical Analysis

The economy of the United States is the number one economy in the world based on its GDP size. Many economies of the world depend upon their working of it. However, the US economy has been facing a labor productivity slowdown since 1973. The productivity growth was witnessed during the 1990s due to the revolution in information technology, but it was proved transitory. To investigate this phenomenon, economists have been actively working and using different theoretical and empirical approaches. But it is still an enigma, and its real cause has not yet been detected. The objective of this research study is to investigate why the US economy has been facing a productivity growth slowdown for a long, what its causes are, and what is its possible solution. The author has used a qualitative research approach in which the real economy and technology economy sectors have been studied based on secondary data collected from OECD, IMF, World Bank, etc. The individual share of these sectors in the US GDP has been determined to analyze their effects on productivity growth. The author has also compared goods and services sectors and their contribution to the US GDP. The study results show that no breakthrough or major innovation has occurred in an important sector of the US economy. Information technology is a small sector, and growth in this sector during the 1990s has not significantly impacted the US economy. The evidence shows that the quality of patents is falling despite the increasing number of researchers from 1990-2010. It reflects the diminishing return on R&D investment in the technology sector. The ratio of input/output is 40/100, which is totally against the concept of constant return to scale.