Allocative efficiency explains much of the U.S. productivity slowdown

What the study found: The paper finds that roughly two-thirds of the productivity slowdown in the United States during the 1970s and 2000s can be explained by a lack of improvement in allocative efficiency, which means how well resources are distributed across sectors.
Why the authors say this matters: The authors conclude that allocative efficiency is an important part of understanding the productivity slowdown, and they suggest that changes in sector-level volatility are linked to worsening allocative efficiency.
What the researchers tested: The researchers extended the framework of Oberfield (2013) to derive sufficient statistics for allocative efficiency and to decompose aggregate productivity growth in a multisector economy.
What worked and what didn't: The decomposition shows a substantial role for allocative efficiency in explaining the slowdown. The data also show that increased sector-level volatility is associated with a deterioration of allocative efficiency.
What to keep in mind: The abstract does not describe additional limitations or caveats beyond the scope of the analysis of U.S. productivity slowdown in the 1970s and 2000s.

Key points

• About two-thirds of the U.S. productivity slowdown is explained by lack of improvement in allocative efficiency.
• Allocative efficiency here means how resources are distributed across sectors.
• The study extends the framework of Oberfield (2013) to analyze a multisector economy.
• Higher sector-level volatility is associated with deterioration in allocative efficiency.
• The abstract does not state additional limitations.