Three macroeconomic trends
Productivity growth has declined sharply across advanced economies since the mid-2000s. In the United States, productivity growth between 2005 and 2018 averaged less than half its long-term rate. This slowdown followed after an episode of above-average growth in the 1990s, fuelled by the rise of information and communication technologies (Fernald 2015). A similar slowdown occurred in most European countries. Indeed, productivity in France and the United Kingdom has almost flatlined for the last 15 years.
The initial surge and subsequent decline in productivity growth coincided with two other macroeconomic trends occurred: the fall of business dynamism and the rise of corporate market power and firm concentration. Business dynamism, which is the process of firms growing, shrinking, emerging, and failing, has been declining for the last 30 years. Signs that business dynamism is weakening include the decline of the rate at which workers reallocate to new employers (e.g., Decker et al. 2018) and the decline in the number of start-ups as a fraction of all firms in the economy (e.g., Calvino et al. 2016, Pugsley and Sahin 2018). Recent research on market power shows that the mark-up that firms charge over their marginal costs has increased sharply, while the share of output produced by the largest firms in a sector has risen over the same timeframe (De Loecker et al. 2018, Autor et al. 2017).
