Can Technology Improvements Cause Productivity Slowdowns?

We explore two channels through which increases in the rate of investment-specific technological change can lead to decreases in measured productivity growth. The first channel is learning; with an increase in the rate of adoption more resources are devoted to new technologies where experience is low. As a result, labor productivity and TFP growth fall temporarily. Second, if the unmeasured quality of final outputs depends significantly on capital input, then declines in productivity growth will be recorded as the growth rate of capital goes up. We document the recent productivity slowdown in the United States and elsewhere and discuss evidence suggesting that an increase in the rate of investment-specific technological change may have occurred at about the same time as the slowdown began. We then use a simple, parameterized vintage capital model in order to gauge the potential importance of this phenomenon for productivity measurements.