Exploding Productivity Growth: Context, Causes, and Implications

Will potential output grow in the future at a 4 percent annual rate, as several of the more optimistic business economists assume, or at the pathetic 1.8 percent annual rate assumed into the distant future by the trustees of the Social Security Administration? 1 Put differently, will real GDP in seventy-five years be 20 times its current level or a mere 3 1 2 times? Academic research on future supply-side issues has focused mainly on the causes of the post-1995 productivity growth revival, but the growth rate of potential output is of independent interest. Variations in four factors-population growth, labor force participation, the unemployment rate, and hours worked per employee-can create significant differences between the long-run path of potential output and that of trend productivity growth. These differences matter for numerous issues, 207