I wish the boffo us productivity report’s recent streak had continued for the first three months of this year. Over the past three quarters, hourly production increased significantly by 3.3 percent (Q2 2023), 4.6 percent (Q3 2023), and 3.5 percent (Q4 2024). However, as GDP growth slowed (lower than expected in the first quarter) and employment growth accelerated (March payrolls exceeded expectations), productivity in the first quarter was at an annualized rate of 0.3%. Slowed down. (Standard alert: Quarterly productivity numbers are notoriously volatile.) But the news isn’t all disappointing. In fact, productivity growth over the past year has slightly increased from 2.7 percent to 2.9 percent with the new data.
Many economists’ enthusiasm about future productivity trends, myself included, revolves around the potential of generative AI. But it will also be a welcome tailwind for accelerating productivity and economic growth, which means a resurgence of startups. Declining entrepreneurship in the United States became a major economic problem in the years following the global financial crisis, and was often cited as a reason for slow productivity growth. Start-ups introduce innovative products and methods, forcing established companies to adapt or fail. They are important drivers of job creation and provide a path to the middle class for less educated and immigrant workers.
There is some good news on this front. In a new analysis, economists Ryan Decker and John Haltiwanger find that the surge in startups seen during the pandemic – a profound shift in the way we live and work has created new business opportunities. discovered that there was a big high-tech element. . From the analysis:
In this note, we show that high-tech industries made a large and disproportionate contribution to the surge in establishment net entry since 2019. Net entry into high-tech industries was higher than non-high-tech industries in the post-2019 period. Pre-pandemic period. This can be seen in Figure 1. The high-tech industry also contributed significantly to total employment creation, including through jobs created through entry into establishments. The emerging facts we document suggest that technology investments have played an important role in recent business entry dynamics.
If history is any guide, this can have a huge impact on productivity in the long run. Technology companies have played a key role in driving productivity changes over time. Decker and Haltiwanger: “Indeed, the high-tech industries that contributed most to the strong productivity growth from the mid-1990s to the early 2000s saw a surge in corporate entry in the early 1990s.”
Moreover, the state of U.S. business dynamism is not unrelated to the future impact of AI on the economy. Inventions must be processed into innovations that create new products and technologies with an entrepreneurial spirit. Economist Martin Weizmann once explained that “the ultimate limit to growth lies not so much in the ability to generate new ideas as in the ability to process large numbers of potentially new ideas into usable forms.” . If AI is an important general-purpose technology, it will take many startups to turn those chatbots and image generators into productive, revenue-generating uses.
