Intangibles, markups, and the measurement of productivity growth

•In recent years, productivity (TFP) growth has declined, but intangible capital and markups have risen.•Either markups or omitted intangibles can bias measured TFP growth downward.•The combination of intangibles and markups magnifies the bias from each on measured TFP growth.•Together, intangibles...

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Bibliographic Details
Published in:Journal of monetary economics 2021-11, Vol.124, p.S92-S109
Main Authors: Crouzet, Nicolas, Eberly, Janice
Format: Article
Language:English
Subjects:
Intangible capital
Markups
Mismeasurement
Productivity growth
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Summary:•In recent years, productivity (TFP) growth has declined, but intangible capital and markups have risen.•Either markups or omitted intangibles can bias measured TFP growth downward.•The combination of intangibles and markups magnifies the bias from each on measured TFP growth.•Together, intangibles and markups can account for 1/3 to 2/3 of the measured decline in TFP growth. In recent years, measured TFP growth in the US has declined. We argue that two forces contributed to this decline: the mismeasurement of intangible capital, and rising markups. Markups affect input shares, while intangibles omitted from measures of investment affect measured capital growth, each potentially generating downward bias in measured TFP growth. Most importantly, when both forces are simultaneously present, their effects reinforce each other and amplify the downward bias in measured TFP growth. Using input-output data, we estimate that this mechanism could account for one-third to two-thirds of the decline in measured TFP growth.
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2021.09.005