Productivity, Innovation, and Entrepreneurship.

• Author: Bloom, Nicholas
• Position: Program Report

The Productivity, Innovation, and Entrepreneurship (PIE) Program was founded as the Productivity Program, with Zvi Griliches as the inaugural program director, in 1978. The program benefited tremendously from Griliches' inspirational leadership, which was continued by Ernst Berndt. In recent years, the program has expanded to incorporate the vibrant and growing body of research in the affiliated fields of innovation and entrepreneurship.

With the generous support of the Ewing Marion Kauffman and Alfred P. Sloan Foundations, the program has generated a large and diverse volume of research activity. Currently, 128 researchers are affiliated with the PIE Program. Since the last program report, in September 2013, affiliates have distributed more than 1,050 working papers and edited or contributed to several research volumes, including the annual Innovation Policy and the Economy series.

The activities of the program are organized into four large project areas: economic research on the measurement and drivers of productivity growth; innovation, which examines R&D, patenting, and creative activities; entrepreneurship, which focuses on the measurement, causes, and effects of new business creation; and digitization, which focuses on the creation, use, and impact of digital information. This review summarizes the research in the first three of these areas. In the interest of space, we will not detail the PIE group's many activities, including boot camps for graduate students and an annual conference in Washington that communicates research findings to the policy community.

Productivity

Recent years have seen growing concerns that US gross domestic product (GDP) growth is slowing. A factor that accounts for about half of this slowdown is the decline of labor productivity growth [Figure 1], which fell by roughly half, from 3 percent to 1.5 percent, between 1950 and 2019. The other half of slowing growth is due to declining growth of labor hours, due roughly equally to declining population growth and declining labor force participation. (2) National productivity is defined as the amount of GDP that can be obtained with a given set of inputs. In this sense, productivity growth is "growth by inspiration" in that it yields more from less, in contrast to growth from increasing the use of inputs, which has been labeled "growth by perspiration." As such, productivity growth is critical to driving long-run increases in the standard of living.

One immediate question is whether the productivity growth slowdown is real. An alternative view is that the observed slowdown in productivity growth could be an artifact of some measurement issue such as the increasing importance of online activity, much of which may not be recorded in conventional GDP statistics. Several recent studies argue against this view: they conclude that the decline in productivity growth is real, rather than due to measurement issues in inputs and outputs, transfer pricing, or cyclical issues related to the end of the 1990s information technology boom. (3)

This then leads to another question: what is driving the fall in productivity? Robert Gordon argues that a combination of headwinds accounts for this slowdown. (4) One is the slowing growth of educational attainment, which began around 1980 with the annual growth rate of the percentage of the population completing high school falling from 3.3 percent per year until 1980 to only 0.2 percent after 1980, with similar slowdowns in college enrollment growth.

The second headwind Gordon highlights is the slowdown of productivity growth after the end of the Great Inventions Era. He argues that inventions such as sanitation, antibiotics, steam and electric power, radio, telephone, and air conditioning drove rapid national growth during the first part of the 20th century, and that comparably high-impact inventions have not been produced as frequently in...