1. Lecture 11. U.S. Growth Resurgence
Economics 1490
THE WORLD ECONOMY:
GROWTH OR STAGNATION?
with
Professor Dale W. Jorgenson
Lecture 11. U.S. Growth Resurgence
October 5, 2017
Harvard University Department of Economics
Fall 2017

2. THE WORLD ECONOMY:
GROWTH OR STAGNATION?
A. Comparing Economies
B. U.S. Crisis and Recovery
C. European Slowdown
D. Asian Economic Miracles
E. Sustainability of Economic Growth
F. World Economic Outlook

3. EUROPEAN SLOWDOWN
11. U.S. Growth Resurgence 
12. Global Trade Slowdown 
13. Europe 2020 and the Single Market 
14. European Policy Response: The Euro 
15. European Policy Response: Brexit

4. SUPPLEMENTARY READING
Marcel P. Timmer, Robert Inklaar, Mary O’Mahony, and Bart van Ark (2010), ECONOMIC GROWTH IN EUROPE: A Comparative Industry Perspective, Cambridge, UK, Cambridge University Press. Chs. 1-2, pp
Paul Schreyer (2001), MEASURING PRODUCTIVITY, OECD MANUAL: Measurement of Aggregate and Industry-Level Productivity Growth, Paris, OECD.

5. U.S. GROWTH RESURGENCE
The U.S. Growth Resurgence after 1995 Was Accompanied by a European Slowdown
Europe Converged to the United States until 1995 in Terms of Labor Productivity and Has Subsequently Diverged
More Rapid Growth of U.S. Labor Productivity after 1995 Was Due to the Development of the Knowledge Economy
The Knowledge Economy Consists of Growth in Labor Quality, IT Capital Intensity, and Total Factor Productivity.

6. MODEL OF PRODUCTION: Production Possibility Frontier
where:
I - Investment
C – Consumption
K – Capital
L – Labor
A - Total Factor Productivity (TFP)

7. SOURCES OF AVERAGE LABOR PRODUCTIVITY GROWTH
where:
  y = Y/H - Output per Hour Worked (ALP).
  k = K/H - Capital Input per Hour Worked.
CAPITAL DEEPENING: growth of capital input per hour worked, weighted by the share of capital.
LABOR QUALITY GROWTH: growth of labor input per hour worked, weighted by the share of labor.
TOTAL FACTOR PRODUCTIVITY.

8. SOURCES OF GROWTH OF THE WORLD ECONOMY
Average annual growth rates, weighted by the income share.

9. SOURCES OF WORLD ECONOMIC GROWTH
Annual percentage growth rates

10. SOURCES OF G7 ECONOMIC GROWTH
Annual percentage growth rates

11. SOURCES OF NON-G7 ECONOMIC GROWTH
Annual percentage growth rates

12. EU-15 GDP PER CAPITA AND PER HOUR WORKED

13. AVERAGE ANNUAL GDP GROWTH RATES

14. EU-15 RELATIVE TO U.S.

15. THE MARKET ECONOMY
Market Economy Excludes Education and Health Services As Well As Government General Administration.
Growth of the Knowledge Economy Includes the Following:
Contribution of Labor Quality (Labor Composition)
Contribution of IT Capital Intensity,
Growth of Total Factor Productivity (Multi-Factor Productivity).

16. DECOMPOSITION OF OUTPUT GROWTH

17. GROSS VALUE ADDED GROWTH AND CONTRIBUTIONS

18. MAJOR SECTOR CONTRIBUTION TO PRODUCTIVITY GROWTH

19. CONTRIBUTIONS TO LABOR PRODUCTIVITY GROWTH

20. THE ROLE OF MARKET SERVICES
The Share of Market Services in the GDP Averaged Around 40 Percent in 1995, But Has Been Steadily Growing
The Contribution of IT Capital Input in the U.S. Is Higher Than in Europe; the Contribution of Non-IT Capital Input Is About the Same
The Share of College-Educated (High-Skilled) Workers in Market Services Is Much Higher in the U.S. than in Europe (Except for Finland)
More Rapid Growth of Labor Productivity in U.S. Market Services Is Due To the Contribution of IT Capital and High-Skilled Workers.

21. GROWTH RATES OF GDP PER HOUR WORKED

22. MAJOR SECTOR SHARES IN TOTAL HOURS WORKED

23. CONTRIBUTION OF ICT AND NON-ICT

24. SHARE OF HIGH-SKILLED WORKERS

25. SOURCES OF LABOR PRODUCTIVITY GROWTH, 1980-2005

26. RELATIVE MFP MEASURES

27. CONTRIBUTION TO LABOR PRODUCTIVITY GROWTH

28. U.S.-EUROPE COMPARISONS FOR THE MARKET ECONOMY
The OECD Has Played an Important Role in Establishing Standards for Productivity Measurement: See Schreyer (2001).
Growth Accounting for Using EU KLEMS; the EU KLEMS Data Base Is Available in the EU KLEMS Website:
The Latest Release Is Through 2012; the Divergence of U.S. and Europe Has Continued up to The Present

29. EU KLEMS GROWTH AND PRODUCTIVITY ACCOUNTS

30. OECD: MEASURING PRODUCTIVITY

31. OUTPUT, HOURS AND LABOR PRODUCTIVITY GROWTH

32. U.S. GROWTH RESURGENCE: SUMMARY
European Economic Performance Converged to U.S. Levels through 1995 and Has Since Diverged
This is Due to Differences in Productivity Growth in Market Services Which Constitute a Growing Share of Advanced Economies, Averaging About 40 Percent of GDP in 1995
U.S. Has Superior Economic Performance in Market Services Due to Investment in IT and the Growing Participation of High-Skilled Workers
This Has Continued up to the Present and Can Be Monitored through the EU KLEMS Data Base