Report: Economies Dealing with Financial Crisis and Productivity

This report examines the slowdown in productivity growth in advanced economies, particularly in the U.S. and Western Europe, following financial crises. It investigates the reasons behind this decline, including the waning effects of the ICT revolution, the after-effects of the financial crisis, and the slow adoption of digitization. The report analyzes the factors contributing to the decline, such as reduced capital expenditures, changes in technology and innovation, and the impact of financial crises on investment. The report also discusses the micro patterns of the slowdown, the factors that remain constant across economies, and the measurement problems that complicate the analysis of productivity growth. The study covers how such slowdown growth of productivity in progressed economies is a measurement problem since the start of the financial crisis. The report concludes by highlighting the importance of understanding these trends to improve economic performance.

Running head: ECONOMIES DEALING WITH FINANCIAL CRISIS
ECONOMIES DEALING WITH FINANCIAL CRISIS
Name of the Student
Name of the University
Author's Note:

1ECONOMIES DEALING WITH FINANCIAL CRISIS
Executive Summary
There has been a slowdown in the growth of productivity in growing economies for many
years, and such an acute decline due to those financial crisis has constructed alarms. In the
report, the reason behind the slowdown in measuring the growth of productivity in growing
economies has been discussed. The report also discusses the decline of productivity growth since
the crisis, which has been subjected to many factors and the reasons for such decline in the
economy has been carried out by making analysis of different sector which will ultimately help
to identify the distinctive causes. The major recent decline which is mainly the product of three
waves which are the waning of an explosion that began in the 1990s from software, PC, database
system information and communications technology (ICT) revolution, financial crisis after
effects, and digitization, that helps to provide important productivity-boosting opportunities, but
the benefits are yet to be measured in scale. Lastly, the study covers how such slowdown growth
of productivity in progressed economies is a measurement problem since the start of the financial
crisis.

2ECONOMIES DEALING WITH FINANCIAL CRISIS
Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Reasons for the decline of productivity growth since the crisis..................................................4
Micropatterns of such slowdown in productivity growth............................................................8
Factors remaining same across all advanced economies.............................................................8
Measurement problems explaining slowdown of U.S. Productivity...........................................9
Conclusion.....................................................................................................................................11
References......................................................................................................................................13

3ECONOMIES DEALING WITH FINANCIAL CRISIS
Introduction
Productivity growth is important to enhance purchasing power of consumers so that the
demand for goods and services can grow to increase the standards of living and wages. Before
recovering from the great recession, in the past, the rate of growth in labor-productivity was
measured at a very low percentage across many advanced economies (Das, Erumban and Das
2018). Therefore, it becomes a moment of concern when there is a slowdown in the growth of
labor productivity at a point of time where economies who are experienced ones rely on profit
from productivity to direct economic growth. The era constitutes technologies, where the
detachment between these fast changes in technology and fading productivity growth could not
be more tolerable. In macroeconomic, there are reasons for such slowdown, such as lack of
investment opportunities, globalization, world-wide stagnation, and decline rates of innovation
(Morgan et al. 2019). In this report, factors responsible for the slowdown in the growth of labor
productivity in the U.S. and Western Europe have been discussed. In addition, the decline of
productivity growth since the crisis has been subjected to many factors and the reasons for such
decline has been carried out by in the report making analysis of different sector which will
ultimately help to identify the distinctive causes.
Discussion
The reality of fallen trend in the growth of productivity has been visible from some facts
and figures all over the world. In 2008, it was seen that every economy at an advanced level had
undergone a decline to a great extent in its total productivity, and if the discussion is made for
productivity, it will be labor productivity growth (Alon et al. 2018). In the United States, labor
productivity growth started declining from an average rate of 2.8 percent in 1995-2004 annually
to 1.5 percent in the year 2005- 2015 (Syverson 2017). In addition, growth of German labor

4ECONOMIES DEALING WITH FINANCIAL CRISIS
productivity during 2011 to 2015, their productivity growth shrunk down at a great level where
in Italy the rates shrunk to zero, and none of them managed to establish the growth of average
labor productivity more than 1% during those times (Remes, Mischke and Krishnan 2018). The
decline in productivity has been faced by many other progressed economies, but it seems to be
underline more in the UK. Before the global crisis identified, the growth of productivity was
marked at an average of 2.3% annually, which practically states that the workers tend to produce
double as compared to the post-crisis production (Besley, Roland and Van 2017). The decline of
productivity growth since the crisis has been subjected to many factors and the reasons for such
decline in the economy has been carried out by analyzing different sector which will ultimately
help to identify the distinctive causes.
Reasons for the decline of productivity growth since the crisis
Since the onset of the 2000s and to 2007, there has been changing in the effects of
employment level, which are reluctant to make a decrease in actual growth in labor productivity
in the U.S. and the year 2011-2015. The cause of such a declining rate was a reduction in the
quality of labor and minimized capital expenditures. However, in Japan and the European
countries also, the growth of total factor productivity has remained negative. Labor productivity

5ECONOMIES DEALING WITH FINANCIAL CRISIS
is a benchmark of the performance of an economy that compares the value of products and
services produced (output) with the number of labor hours utilized in manufacturing those goods
and services. Labor productivity is the ratio of the final output to labor inputs (Sprague, S.,
2017). Between the time of 1995-2004 and 2005-2015, there has been a decline in average
quarterly labor productivity growth by 0.395 percentage (Syverson 2017). Such slowdown in
labor productivity makes a decline in a rise in incomes of household, and make companies more
risk-averse to invest in capital. Thus, it is not probable for the global economy to secure a
powerful performance in economic growth.
Industry contributions to average annual labour productivity growth
In 2000-2007, value added per hour worked expand in the UK swiftly, at 2.64 percentage.
Since the crisis, it has hardly grown at all (Goodridge, Haskel and Wallis 2018). Another cause
of the decline in productivity growth is reckoned by several sectors since 2009. There are two
biggest contributors to the slowdown as per (Tenreyro, S., 2018), sectors of manufacturing and
finance whose aggregate productivity growth added 2% of productivity growth in the UK in the
year 2000 annually during the onset of the crisis but at the same time, both of these sectors have

6ECONOMIES DEALING WITH FINANCIAL CRISIS
diminished with the crisis since 2009 (Tenreyro, S., 2018). In addition, the significant difference
in the operational activities of revenue productivity between these two sectors exists. Before the
crisis, the revenue productivity in finance grew to a great extent in the UK, including its return,
whereas in manufacturing, the growth of revenue productivity was at a satisfactory level
(Tenreyro, S., 2018).
Further, according to (Tenreyro, S., 2018), two more sectors, such as information and
communication, are there which brought down the growth of productivity with an average of
1.9% all over the world since the middle of the 2000s The first one is the waning of the
explosion that started in the 1990s from software, PC, database system (ICT) information and
communications technology revolution, including the reconstitution of domestic operations and
global supply chains reduced productivity growth by about 1% level (Remes, Mischke and
Krishnan 2018).
In addition, as the investment was low even when hiring returned, a particular financial
crisis, including constant suppressed demand and uncertainty, reduced by another 1% (Remes,
Mischke and Krishnan 2018). Most of the companies for about 47% tend to increase their
investment because there has been raise in demand, but 38% of respondents made the risk
aversion as the basic reason for not making investments in the interesting opportunities
productivity (Remes, Mischke and Krishnan 2018). Digitization helps to provide important
productivity-boosting opportunities, but the benefits are yet to be measured in scale. While the
financial services, professional services sectors, and information and communications
technology (ICT) media, are promptly digitizing, while other divisions such as education,
healthcare, and construction are not which are leading to another cause of slowdown productivity
(Remes, Mischke and Krishnan 2018).

7ECONOMIES DEALING WITH FINANCIAL CRISIS
With reference to measured inputs into production, about 60 percent of the slowdown for
the year 2000-2007 is caused due to slower capital deepening, including lower Total factor
Productivity growth. Information and communications technology (ICT) capital per hour worked
raised at an average rate of 1.4 percent pre-crisis, which later gets lower down by a percentage of
1.1 annually. Since the mid of 1990s, this has been increased by precise falls in the respective
price of ICT goods and services by around one-third and by around one-fifth since the 2000s
more than any other industry (Tenreyro, S., 2018).
It has been obvious to see that investments in the technological sector are originating to
fall down in Europe (Tenreyro, S., 2018). The early stage of funding investments made by the
U.S. and Europe in sectors of tech have been showing a decline over the last period, and the
valuation of the companies' are suffering too (Baily and Montalbano 2016).
Hampering resource reallocation has also slowed the productivity between business and
around sectors. The flows of capital and labor between companies are considered to be an
important medium through which technology and ideas are transmitted (Haldane 2017). The
diffusion in rates of return across sectors has been high along with the low rates of labor market
heave between companies, since the crisis. These are in accordance with lower rates of factor
reallocation and thus contributing to low productivity (Haldane 2017).
Tolerance and monetary policy have also slowed productivity through the actions of the
authorities. Giving support to low-productivity businesses who have shown a failure, the firms
are set aside from destruction by the policy actions (Haldane 2017). Although those firms have
been saved from certain destruction, there has been a low level of company liquidations in many
countries since the financial crisis. The level tends to have a chance of remaining lower than the
anticipated given the path of Gross Domestic Product (Haldane 2017).

8ECONOMIES DEALING WITH FINANCIAL CRISIS
Micropatterns of such slowdown in productivity growth
There are some micro patterns of the slowdown which is needed to be the focus as the
above explanations are not sufficient. There has been a question regarding companies that are
focusing on increasing employment without making an increase in productivity growth.
Those growing sectors, speeding up are relatively small to create an influence on total
growth related to productivity. For instance, compared at an average of 18 percent over last
twenty years, at most 4 percent of sectors in the United States were categorized as rising in 2014,
contributing only 4 percent to value-added (Remes, Mischke and Krishnan 2018). The specific
absence of rising sectors across countries is rational, where digitization for productivity is
proceeding gradually and unevenly, including the benefits.
Considering the great recession, in the developed countries, the capital intensity or capital
per worker has promoted having a gradual rate of all-around history after the war (Remes,
Mischke and Krishnan 2018). Workers using better options such as equipment for
manufacturing, computers for study, communication, and updated software to design product in
an innovative way, to make and transfer products, they create a way for the growth of
productivity and are not tend to develop at rates matching those reported in the past (Remes,
Mischke and Krishnan 2018). A disintegration of labor productivity presents that the slow
growth of capital per hour worked shares around half or more of the decline in many countries
related to its productivity.
Factors remaining same across all advanced economies
The causes of the productivity slowdown differ from region to region, but there are some
elements discussed below which remain similar all over the growing economies:

9ECONOMIES DEALING WITH FINANCIAL CRISIS
 At first, recent lower down in capital expenditures for each employee has both devoted to
including cause by certain fall down in productivity growth of labor (Remes, Mischke
and Krishnan 2018).
 In the second element, having a change in technology and innovation that are broadly
yielding only marginal profit in total factor productivity, the expansion of technology is
weakened related to productivity growth (Remes, Mischke and Krishnan 2018).
 Lastly, the endowment of the financial crisis, where the burden of post-crisis adjustments
are shifted densely upon higher taxation of the income of normal workers, have
committed towards reducing expansion in both labor and capital productivity by
suppressed demand and investment (Remes, Mischke and Krishnan 2018).
It can be seen from the above discussion that the detrimental influence of productivity of
labor collapse on incomes can also be drawn not only to the actual levels of income earned but to
inconsistent income.
Measurement problems explaining slowdown of U.S. Productivity
 The slowdown of productivity is common in the U.S., where size of the slowdown of
productivity is not associated with the consumption of countries or propensity to produce
information and communication technologies (ICT) products and services, recognized
frequently as the chief source of the measurement problem (Syverson 2017).
 Measurement of the consumer surplus is related to the utilization of free internet-related
services where the effort is established based on the idea that there will be large creation
of surplus by the new technologies having a low amount of revenue (Syverson 2017).
Hence, it makes the acquiring and utilization of internet access a benchmark for making
profits from such technologies. Although sizable, nearly all the measurements of the

10ECONOMIES DEALING WITH FINANCIAL CRISIS
value of internet-related technologies fall short of the missing output to the slowdown of
productivity. In addition, even the largest approximation, which calculates the duration
that consumer spends online and is figured out with imputing the value of duration by
consumers using these services, aggregates for the sum of one-third only of the missing
output (Syverson 2017).
 If any modification is built to the price deflators for information and communication
technologies (ICT) products to grasp changes in quality along with presentation of new
products, such amendment leads to describe a small share in missing output exclusively
due to the post-2004 slowdown of productivity in the United States (Syverson 2017).
Having information and communication technologies industries inclusively calculating at
a minimum value of 8% of the whole economy in 2004, relative modification to the price
deflators would require to be remarkably high to account for total missing output equal to
seven times the actual deflator magnitude. Incremental real value-added of the
information and communication technologies industries would have been six times the
recognized change, whereas true labor productivity in the industries would have risen 363
percent over 11 years (Syverson 2017).
 Gross domestic income (GDI) and gross domestic product (GDP) are proportionate in the
conceptive way, which becomes myth as the computation is done with different source
data. Measured gross domestic income shows extension against gross domestic product
since 2004 on an average of 0.4 percent annually, maybe specifying payments to workers
for the production of products and services that are sold free or at a huge discounted
prices, this move started before the slowdown of productivity and in addition, presents

11ECONOMIES DEALING WITH FINANCIAL CRISIS
unexpected high capital income such as corporate profits rather than labor income which
has relatively fall (Syverson 2017).
However, there have been many arguments and debates related to measurement problems
stating that numerous of the measurement problems already identified a long time sooner the
productivity started slowing down in the advanced economy (Haldane 2017). All the particular
problems would require to have upturn adequately and improbable to describe the slowdown of
productivity completely (Haldane 2017). Persistent with that, the productivity slowdown
emerges to be irrelevant to a great extent to the invasion of information and communication
technologies all over the world and across different sectors (Haldane 2017).
Conclusion
Thus, from the above discussion, it can be concluded that as there has been a slowdown
in the growth of productivity in growing economies for many years, and such an acute decline
due to those financial crisis has constructed alarms. The decline of productivity growth since the
crisis, which has been subjected to many factors and the reasons for such a decline in the
economy, has been carried out by making analyses of the different sectors such as
manufacturing, finance, information, and communication. The major recent decline which is
mainly the product of three waves which are the waning of an explosion that began in the 1990s
from software, PC, database system information and communications technology (ICT)
revolution, financial crisis after effects, and digitization, that helps to provide important
productivity-boosting opportunities, but the benefits are yet to be measured in scale. The
slowdown of growth of productivity in progressed economies is measurement problem since the
start of financial crisis which is focused on four patterns which are: the size of the productivity
slowdown across countries is not associated with the consumption of countries or propensity to

12ECONOMIES DEALING WITH FINANCIAL CRISIS
produce information and communication technologies (ICT) products and services recognized
frequently as the major source of measurement problem concentration of those economies of
countries, measurement of the consumer surplus is related to the use of free internet-related
services where the effort is established based on the idea that there will be large creation of
surplus by the new technologies having a low amount of revenue, adjustments built to the price
deflators for information and communication technologies (ICT) products to grasp changes in
quality and the presentation of new goods, such amendment account for a small share in missing
output due to the slowdown and the gap between GDI–GDP started before the slowdown of
productivity and in addition presents unexpected high capital income such as corporate profits
rather than labor income which has relatively fall.

13ECONOMIES DEALING WITH FINANCIAL CRISIS
References
Alon, T., Berger, D., Dent, R. and Pugsley, B., 2018. Older and slower: The startup deficit's
lasting effects on aggregate productivity growth. Journal of Monetary Economics, 93, pp.68-85.
Baily, M.N. and Montalbano, N., 2016. Why is US productivity growth so slow? Possible
explanations and policy responses. Brookings Institution, Hutchins Center Working Paper, 22.
Besley, T., Roland, I. and Van Reenen, J., 2017. Credit Market Frictions and the Productivity
Slowdown. mimeo.
Das, D.K., Erumban, A.A. and Das, P.C., 2018. Did Productivity Slowdown in the Emerging
Economies? Evidence from India in the Pre and Post Global Crisis Period.
Goodridge, P., Haskel, J. and Wallis, G., 2018. Accounting for the UK productivity puzzle: a
decomposition and predictions. Economica, 85(339), pp.581-605.
Haldane, A., 2017. Productivity puzzles. speech by Andrew Haldane, chief economist, Bank of
England, London School of Economics, 20.
Morgan, B., Holtham, G., Morgan, S., Huggins, R., Clifton, N., Davies, J., Walpole, G., Kyaw,
S. and De Laurentis, C., 2019. Managing Productivity in Welsh Firms: Interim Report. Hodge
Foundation.
Remes, J., Mischke, J. and Krishnan, M., 2018. Solving the productivity puzzle: The role of
demand and the promise of digitization. International Productivity Monitor, (35), pp.28-51.
Sprague, S., 2017. Below trend: The US productivity slowdown since the great recession.

14ECONOMIES DEALING WITH FINANCIAL CRISIS
Syverson, C., 2017. Challenges to mismeasurement explanations for the US productivity
slowdown. Journal of Economic Perspectives, 31(2), pp.165-86.
Tenreyro, S., 2018. The fall in productivity growth: causes and implications. speech given at the
Peston Lecture Theatre (Queen Mary, University of London), Bank of England.

15ECONOMIES DEALING WITH FINANCIAL CRISIS