A ‘High-Pressure Economy’ Can Boost Productivity

Abstract

The last four years have seen an extraordinarily sharp deceleration in productivity growth (the average amount of income generated in an hour of work in the economy). In fact, it has been below 1 percent for three years. But taking the slow productivity growth in recent years as fixed and unchangeable would be a huge policy mistake. It locks in inadequate fiscal and monetary policies. On the flip side, argues the author, there is evidence that pushing up wages by further reducing unemployment would increase productivity as businesses gain more incentive to invest in the capital equipment and processes that make those workers more productive.

Notes

For more on net, economy–wide productivity, see Bivens and Mishel (2015).

Key examples of a theoretical treatment of this include Bhaduri (2003), Dutt (2006), Barbosa-Filho (2004), and Barbosa-Filho and Taylor (2006).

Some more details about the data and methods used in regression analyses in this paper can be found in the appendix.

Additional information

Notes on contributors

Josh Bivens

Josh Bivens is the Research Director at the Economic Policy Institute in (EPI) Washington, DC. He was previously an economist at EPI and an assistant professor of economics at Roosevelt University. He has written two books – Failure by Design, the Story of America’s Broken Economy and Everybody Wins Except for Most of Us: What Economics Teachers About Globalization. His Ph.D. is from the New School for Social Research. He is also the co-author of the State of Working America, 12th Edition and has written numerous articles for both popular and professional audiences.