Productivity growth in the United States and other industrialized nations has been slowing for a half century and hit a wall in the mid-2000s. Considering that productivity is a central determinant of economic growth, economists have devoted considerable attention to figuring out what’s wrong. Some argue that we may be measuring productivity wrong, others that we’ve hit a lull before a surge of innovations, while still others think that the most impactful advances have already been made.
But according to MIT’s Daron Acemoglu and David Autor and Chicago Booth’s Christina Patterson, the real problem is uneven innovation between industries that creates bottlenecks.
They point to batteries as an example. Rechargeable batteries have been powering mobile electronic devices since the 1970s, and advances in battery technology led to the first commercially successful hybrid car, the Toyota Prius, in 1997. But despite advances in engine software and safety sensor technology, cars couldn’t run on electricity alone because, for years, batteries couldn’t store enough energy to power all-electric vehicles. Batteries turned into a bottleneck that held back the auto industry for more than a decade.
Acemoglu, Autor, and Patterson argue that every breakthrough in a given industry requires simultaneous innovation by both the end producer and all of its suppliers. If two components of a product incorporate new technology but a third supplier does not, the end product can’t incorporate any of the advances, the researchers write. That lopsided innovation causes uneven growth that can stunt economic expansion.
The researchers built a model to estimate how much of an industry’s productivity is determined by the growth of its suppliers. They focused on total factor productivity, a measure of how many more goods and services are produced with the same resources, accounting for increases in capital, labor, and other materials. Using industry-level data from 1958 to 2011 covering 462 manufacturing industries, as well as corresponding annual data for 42 nonmanufacturing industries between 1987 and 2011, and US Bureau of Economic Analysis data, the model calculated how much each industry produced and spent on components. The researchers also analyzed corresponding patent data.
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US Construction Has a Productivity ProblemThey find that most of the US productivity slowdown reflected a “sizable increase” in lopsided innovation and productivity gains across industries—which is why a sector such as automotives could find itself hampered by another industry, such as battery manufacturing. Some industries fail to keep pace with new technologies, the study suggests. US manufacturing productivity would have grown twice as rapidly between 1997 and 2007 had TFP growth continued at its 1977–87 level for the next two decades, say Acemoglu, Autor, and Patterson.
The model estimated what would have happened had the 10 fastest-growing industries experienced a 20 percent decrease in TFP growth while the bottom 50 percent had a simultaneous increase in growth. The shift, it indicates, would have increased aggregate TFP growth in manufacturing by 0.6 percentage points between 1997 and 2007.
The study calls out a few big industries that are large contributors to GDP—including surgical and medical instruments, gasoline engines, and industrial valves—as some of the most bottlenecked by uneven growth in their suppliers. Major bottlenecks also plagued companies in pharmaceutical preparation, basic inorganic chemicals, electronic connectors, and chemicals used in consumer products such as detergents, cosmetics, and other personal care items.
Importing goods could relieve domestic bottlenecks, the researchers write, but countries might grow overly dependent on international supply chains—which can be detrimental, as many experienced during the COVID-19 pandemic. An alternative would be to balance out the amount of research and development in a given industry, write Acemoglu, Autor, and Patterson. They don’t offer a blueprint for how companies and the government can work together to create this balance, but the path of batteries provides some idea of how bottlenecks can be alleviated. Federal and state clean energy laws revived car companies’ interest in producing electric vehicles in the 1990s, according to the US Department of Energy. The government also allocated billions to advance battery technology and to create a nationwide charging infrastructure as part of the American Recovery and Reinvestment Act of 2009.
“Our framework makes a strong—perhaps even rash—prediction, whose verification awaits the passage of time: if and when lagging industries ultimately increase their innovation and productivity growth rates, a rapid takeoff in aggregate productivity should ensue,” the researchers write.
Daron Acemoglu, David Autor, and Christina Patterson, “Bottlenecks: Sectoral Imbalances and the US Productivity Slowdown,” Working paper, July 2023.
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