By Michael Mandel
On an aggregate level, American labor productivity gains are stagnating at only 1.6 percent annually since 2019, though the United States is still significantly outperforming Europe and Japan. But U.S. policies to boost productivity and living standard gains must clearly differentiate between leading-edge sectors such as information and retail trade—which have consistently high productivity growth—and lagging sectors such as agriculture, construction, utilities, and manufacturing—which have very slow or negative productivity growth.
In particular, policymakers should adopt a two-pronged approach to productivity. Sectors such as agriculture (0.5 percent productivity growth since 2019), construction (-1.3 percent productivity growth), utilities (0.4 percent productivity growth), and manufacturing (-0.1 percent productivity growth ) have persistently pulled down overall productivity gains. These are also the sectors at the heart of the recent inflationary surge, with sharply rising prices for goods such as food, housing, and automobiles undercutting living standards. The weakness in domestic productivity growth in these sectors, especially manufacturing and agriculture, has also left the United States vulnerable to future supply chain shocks and further worsened the housing shortage.
