Productivity trends
Changes in productivity trends are important because they feed directly through to GDP growth. For any given number of employed people, the volume of output depends on how many hours they work and how much they produce per hour, also known as productivity. The possibility that AI will increase trend productivity growth is therefore worthy of further investigation. It is helpful to start by reviewing how productivity trends have evolved over the past few decades. To avoid the potential confusing effects of Covid, the analysis stops in 2019, although we show data for the post-Covid period.
We find that labour productivity growth was strong from 1955-1965 before declining in the following two decades and then slowly increasing in the decade thereafter. Productivity then jumped for a decade between 1996 and 2005, but has plummeted since then. Over the period from 1955-2005, annualised GDP growth was 3.4% per annum, with growth in labour force participation and in the working age population offsetting periods in which productivity growth was weaker.
Slowing productivity growth from 2006-2019 was compounded by declines in the labour force participation rate and the growth rate of the working age population, such that from 2006 to 2019, annualised GDP growth was just 1.9% per annum.
Given that the weak demographic trends are well set and difficult to influence, the main ways in which GDP growth can be augmented are:
- An increase in hours worked
- An increased in the participation rate
- An increase in productivity growth
In the rest of this report, we focus on the last item and in particular the potential impact of AI on productivity.
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