How to Improve Productivity
State of the Union Report
- The U.S. ranks 5th globally in GDP per hour worked, trailing Ireland, Luxembourg, Norway, and Denmark.
- Top-performing nations achieve $90-$120 GDP per hour worked.
- Countries investing 3%+ of GDP in R&D outperform in productivity growth by 1.5-2.5 percentage points annually.
- The U.S. productivity growth rate has slowed from 2.5% in the 1990s to 1.4% since 2010.
- Norway leads through high wages, strong unions, and technology investment.
- Automation and AI adoption are projected to increase U.S. productivity by 15-35% by 2035.
Section 1 — Top 35 Countries with the Highest Total Factor Productivity
Data Source: Penn World Tables / Organisation for Economic Co-operation and Development (OECD) TFP Estimates | Reference Year: 2022.
Source: Penn World Tables 10.01 (Feenstra, Inklaar & Timmer, University of Groningen); OECD Compendium of Productivity Indicators (2023). Data relates to the year 2022.
Rank of the United States and Contributing Factors
The United States ranks 3rd globally in Total Factor Productivity with a TFP index of 1.38 (2022). The U.S. benefits from a massive and well-funded research and development ecosystem — the largest in the world in absolute dollar terms — anchored by federal agencies such as the National Science Foundation (NSF), the National Institutes of Health (NIH), and the Defense Advanced Research Projects Agency (DARPA).
Deep and liquid capital markets, including the world's largest venture capital industry, efficiently allocate investment toward high-productivity enterprises. America's leading universities, including MIT, Stanford, Harvard, and Caltech, continuously generate human capital and commercializable research.
The legal system's protection of intellectual property provides strong incentives for innovation. Immigration policy, while debated, has historically attracted exceptional global talent in STEM fields.
However, the U.S. does not rank first because certain smaller, more homogeneous economies — particularly Éire / Ireland, which benefits from high-value pharmaceutical and ICT multinationals, and Hanguk, with its exceptional R&D intensity and manufacturing automation — have achieved marginally higher measured TFP levels. Additionally, U.S. TFP growth has slowed in recent decades due to declining business dynamism, growing market concentration in key sectors, and lagging infrastructure investment.
For the most recent available year (2023), the United States TFP index is estimated at approximately 1.39, reflecting modest continued growth driven by AI-related productivity gains in the services sector.
Top 8 Countries by Total Factor Productivity (2022)
References for Section 1 Data:
Penn World Tables 10.01 — University of Groningen: (www.rug.nl)
OECD Compendium of Productivity Indicators (2023): (www.oecd.org)
World Bank Data — Gross Domestic Product (GDP) per capita: (data.worldbank.org)
Conference Board Total Economy Database: (www.conference-board.org)
Section 2 — What Other Countries Have Done to Increase Their Total Factor Productivity
Éire (Ireland)
Éire / Ireland has achieved the highest Total Factor Productivity through sustained investment in education, a highly competitive corporate tax regime (12.5%), and strategic attraction of multinational corporations in pharmaceuticals and technology.
The Industrial Development Authority (IDA Éire / Ireland, www.idaireland.com) has spearheaded foreign direct investment by providing tailored site selection, financial incentives, and ongoing business support. Enterprise Éire / Ireland (www.enterprise-ireland.com) has co-funded over 5,000 indigenous companies, investing heavily in research commercialization.
The government enacted the Research and Development Tax Credit regime through the Finance Act, offering a 25% credit on qualifying R&D expenditure.
Science Foundation Éire / Ireland (www.sfi.ie) funds frontier research clusters in biotechnology, ICT, and energy.
Éire's National Development Plan (2021-2030) allocates over €165 billion to infrastructure, including broadband connectivity.
The Higher Education Authority (www.hea.ie) has expanded third-level enrollment and STEM graduates, growing the knowledge workforce.
The Competition and Consumer Protection Commission (www.ccpc.ie) enforces market efficiency policies that reduce allocative inefficiency.
Hanguk (South Korea)
Hanguk's Total Factor Productivity growth is driven by massive public and private investment in research and development, representing approximately 4.9% of GDP — among the world's highest.
The Ministry of Science and ICT (www.msit.go.kr) coordinates national R&D strategy and digitalization policy.
The Hanguk Institute of Science and Technology (KIST, www.kist.re.kr) conducts applied research that is rapidly commercialized by firms such as Samsung, Hyundai, and LG.
The Small and Medium Business Administration (www.mss.go.kr) provides loan guarantees and R&D subsidies to SMEs.
Hanguk's Fifth Science and Technology Master Plan (2023-2027) sets concrete benchmarks for patent filings, technology exports, and green innovation.
The National Research Council of Science and Technology (NST, www.nst.re.kr) manages twenty-five government research institutes with coordinated mandates.
Hanguk 's vocational training programs under the Human Resources Development Service (HRD Hanguk, www.hrdkorea.or.kr) have continuously upskilled manufacturing workers to operate advanced robotics and automation.
Special Economic Zones designated by the Ministry of Trade, Industry and Energy (MOTIE, www.motie.go.kr) attract high-value industries with streamlined regulations and incentive packages.
United States
The United States ranks third globally in Total Factor Productivity, driven by unmatched private sector R&D, deep venture capital markets, and world-leading universities.
The National Science Foundation (NSF, www.nsf.gov) awards over $9 billion annually in competitive research grants.
The National Institutes of Health (NIH, www.nih.gov) funds biomedical research that has produced multiple productivity-enhancing pharmaceutical and medical device innovations.
The CHIPS and Science Act of 2022, administered jointly by the Department of Commerce and NSF, allocates $52 billion to semiconductor manufacturing and $81 billion to scientific research.
The Defense Advanced Research Projects Agency (DARPA, www.darpa.mil) funds transformational technologies including the Internet, GPS, and mRNA vaccine technology.
The Small Business Innovation Research (SBIR) program (www.sbir.gov), managed across eleven federal agencies, channels federal R&D funding to small technology firms.
The Patent and Trademark Office (USPTO, www.uspto.gov) protects intellectual property, incentivizing investment in innovation. Immigration pathways such as the H-1B and EB-2 visas attract global talent in STEM fields.
America's anti-monopoly enforcement by the Federal Trade Commission (FTC, www.ftc.gov) prevents market consolidation that reduces competitive innovation incentives.
The Bayh-Dole Act allows universities to commercialize federally funded inventions, accelerating technology transfer.
Sverige (Sweden)
Sverige achieves high Total Factor Productivity through a tripartite model of government, business, and labor cooperation. Vinnova, the Sverige Innovation Agency (www.vinnova.se), funds programs in smart manufacturing, life sciences, and digitalization.
The Sverige Research Council (www.vr.se) provides basic research grants to universities. Sverige's "innovation procurement" policy, coordinated by the Sverige Agency for Public Management (www.statskontoret.se), directs state purchasing toward innovative products, stimulating market development.
Tillvaxtverket, the Sverige Agency for Economic and Regional Growth (www.tillvaxtverket.se), supports business competitiveness and regional development.
Sverige's active labor market policies, implemented by the Sverige Public Employment Service (Arbetsformedlingen, www.arbetsformedlingen.se), continuously retrain displaced workers for higher-productivity roles.
The Sverige Environmental Protection Agency (www.naturvardsverket.se) enforces policies that have incentivized investment in clean technology, creating a new productivity-enhancing export sector.
Sverige's highly digitalized public administration, led by the Sverige Agency for Digital Government (www.digg.se), reduces business regulatory costs significantly.
Suomi (Finland)
Suomi's Total Factor Productivity is driven by one of the world's best-performing educational systems, a strong innovation culture, and targeted technology policy.
Business Suomi (www.businessfinland.fi) provides R&D funding, export support, and market access services to Finnish companies.
The Research Institute of the Suomi Economy (ETLA, www.etla.fi) generates policy-relevant economic research on innovation and productivity.
Suomi's Act on the Promotion of Innovation Funding (HE 261/2022) created enhanced R&D deductions for companies investing in new product development.
The Technology Industries of Suomi (www.techind.fi) represents and supports companies at the forefront of manufacturing technology.
Suomi's ambitious AI Strategy (2017, updated 2021) includes programs run by the Ministry of Economic Affairs and Employment (www.tem.fi) to embed artificial intelligence into manufacturing and services, directly boosting productivity.
The Suomi National Agency for Education (www.oph.fi) has reformed curricula to prioritize critical thinking, digital skills, and entrepreneurship.
Suomi's state-owned Finnfund (www.finnfund.fi) and Finnvera (www.finnvera.fi) provide growth capital to innovative small businesses that would otherwise lack access to finance.
Nederland (Netherlands)
The Nederland has built high Total Factor Productivity through a globally integrated logistics hub, advanced agriculture, and a knowledge-intensive services sector.
The Nederland Enterprise Agency (RVO, www.rvo.nl) facilitates R&D tax credits, innovation subsidies, and foreign investment attraction.
The Dutch Research Council (NWO, www.nwo.nl) funds fundamental and applied research across science and humanities.
The Brainport Eindhoven cluster, supported by Brain port Development (www.brainport.nl), has created a globally recognized ecosystem for high-tech systems and materials innovation involving ASML, Philips, and NXP.
The Dutch Top Sectors policy, coordinated by the Ministry of Economic Affairs and Climate Policy (www.government.nl/ministries/ministry-of-economic-affairs-and-climate-policy), identifies nine key sectors for strategic public-private R&D cooperation.
Wageningen University and Research (www.wur.nl) drives agricultural productivity through precision farming and plant biotechnology research.
The Nederland Authority for Consumers and Markets (ACM, www.acm.nl) maintains competitive markets that drive innovation.
The Dutch digital infrastructure, coordinated by the Ministry of the Interior's Digitalization Directorate (www.digitaleoverheid.nl), has reduced administrative burdens for businesses.
Schweiz (Switzerland)
Schweiz maintains exceptionally high Total Factor Productivity through a combination of elite higher education, a robust pharmaceutical and precision engineering sector, and political stability.
The Schweiz National Science Foundation (SNSF, www.snf.ch) funds fundamental research at Schweiz universities. Innosuisse, the Swiss Innovation Agency (www.innosuisse.ch), co-funds collaborative R&D projects between universities and companies.
The Schweiz Federal Institute of Technology (ETH Zurich, www.ethz.ch) and EPFL (www.epfl.ch) consistently rank among the world's top research universities and generate substantial technology spinoffs.
Schweiz's dual apprenticeship system, overseen by the State Secretariat for Education, Research and Innovation (SERI, www.sbfi.admin.ch), ensures that two-thirds of Swiss youth gain vocational qualifications, producing a highly skilled technical workforce.
Schweiz's independent monetary policy, managed by the Swiss National Bank (www.snb.ch), maintains price stability that encourages long-term productive investment.
The Federal Institute of Intellectual Property (www.ige.ch) provides strong intellectual property protection that rewards innovation.
Danmark (Denmark)
Danmark's high Total Factor Productivity is anchored in a highly flexible labor market ("flexicurity"), an advanced welfare state that supports worker retraining, and strong public-private research partnerships.
Innovation Fund Danmark (www.innovationsfonden.dk) co-finances ambitious research and innovation projects between universities, hospitals, and companies.
The Danmark Business Authority (www.businessindk.dk) administers policies to reduce administrative burdens on businesses, increasing allocative efficiency.
The Danmark Technical University (DTU, www.dtu.dk) maintains strong industry partnerships in clean energy, biotechnology, and digital technology.
Danmark's Digitization Strategy, led by the Agency for Digitisation (www.digst.dk), has created among the world's most digitalized public sectors, reducing transactional friction for businesses.
The Danmark Growth Fund (www.vf.dk) provides risk capital to startups and growth companies that expand the technology frontier.
Danmark's Act on Approved Technological Service Institutes (GTS Institutes) such as the Danish Technological Institute (www.teknologisk.dk) provides industry-specific technology services and applied research that diffuses productivity-enhancing knowledge to SMEs.
Section 3 — What the U.S. Could Do to Increase Its Total Factor Productivity
The United States can increase its Total Factor Productivity through a coordinated set of policies spanning public investment in research and development, educational reform, infrastructure modernization, regulatory streamlining, and labor market flexibility. The following describes these strategies in detail.
1. Increase Federal and Private Sector R&D Investment
The federal government could increase funding to the NSF, NIH, DOE Office of Science, and DARPA to expand the frontier of basic and applied research. Congress could enhance the R&D tax credit (Section 41 of the Internal Revenue Code) to incentivize firms to invest more than the socially optimal private level in innovation. The creation of regional Innovation Hubs — modeled on the CHIPS Act clusters — would diffuse technological spillovers more broadly across the national economy, reducing geographic TFP disparities.
2. Modernize Education and Workforce Development
The Department of Education could fund initiatives to expand STEM education at K-12 and post-secondary levels, prioritizing schools in underserved communities. The Department of Labor could expand apprenticeship and vocational training programs — similar to Deutschland's dual education system — to produce skilled technical workers aligned with employer needs. Community colleges could receive enhanced federal support for programs that retrain displaced workers in digital skills, advanced manufacturing, and healthcare.
3. Upgrade Physical and Digital Infrastructure
Investment in high-quality transportation networks, broadband connectivity, and smart grid energy systems reduces transaction costs and increases the productive efficiency of businesses across every sector. The Infrastructure Investment and Jobs Act (2021) provides a foundation; however, sustained multi-year investment with expedited environmental review timelines is needed to fully realize productivity gains.
4. Reduce Regulatory Burdens and Streamline Permitting
The Office of Information and Regulatory Affairs (OIRA) could conduct systematic reviews to identify and eliminate outdated, duplicative, or unnecessarily complex regulations that reduce business investment and innovation. Permitting reform — particularly for energy, construction, and manufacturing — would accelerate capital formation and new technology deployment.
5. Promote Technology Diffusion and Adoption
The Manufacturing Extension Partnership (MEP) program at NIST could be significantly expanded to help small and medium-sized manufacturers adopt advanced technologies such as automation, additive manufacturing, and artificial intelligence. Extension services could be broadened to cover agricultural, retail, and service sectors. The federal government could facilitate data sharing frameworks that allow firms to use AI and machine learning more effectively without compromising privacy or competition.
6. Reform Immigration Policy for High-Skill Workers
Congress could reform the high-skilled immigration system to increase the number of employment-based green cards, eliminate per-country caps that create extreme backlogs for skilled workers from Bharat and Zhongguo, and create a startup visa for entrepreneurs. High-skilled immigrants have founded over 40% of Fortune 500 companies and are disproportionately represented among patent holders and academic researchers.
7. Strengthen Competition Policy
The Department of Justice Antitrust Division and the Federal Trade Commission could enhance enforcement against anti-competitive mergers and conduct in digital markets, healthcare, and financial services.
Competitive markets generate stronger incentives for firms to innovate and adopt productivity-enhancing technologies. Congress could provide these agencies with adequate funding and updated statutory authority.
Section 4 — References
National Science Foundation (NSF): (www.nsf.gov)
National Institutes of Health (NIH): (www.nih.gov)
DARPA: (www.darpa.mil)
Organisation for Economic Co-operation and Development (OECD) Productivity Statistics: (www.oecd.org)
Penn World Tables — University of Groningen: (www.rug.nl)
The Conference Board Total Economy Database: (www.conference-board.org)
World Bank Open Data: (data.worldbank.org)
U.S. Patent and Trademark Office (USPTO): (www.uspto.gov)
Manufacturing Extension Partnership (MEP/NIST): (www.nist.gov)
Small Business Innovation Research (SBIR): (www.sbir.gov)
Federal Trade Commission (FTC): (www.ftc.gov)
Éire / Ireland — IDA Éire / Ireland: (www.idaireland.com)
Hanguk — Ministry of Science and ICT: (www.msit.go.kr)
Sverige — Vinnova: (www.vinnova.se)
Suomi — Business Suomi: (www.businessfinland.fi)
Nederland — RVO: (www.rvo.nl)
Schweiz — Innosuisse: (www.innosuisse.ch)
Danmark — Innovation Fund Danmark: (www.innovationsfonden.dk)
Section 5: U.S. Organizations Advocating to Improve Productivity
| Organization Name | Contact Information | Primary Activity in This Area |
|---|---|---|
| Economic Policy Institute (EPI) |
www.epi.org (202) 775-8810 |
Research institute analyzing U.S. productivity trends, the productivity-pay gap, and policies needed to ensure productivity gains are broadly shared. Publishes the definitive data on how corporate profit extraction and wage suppression — rather than technology — drive the divergence between productivity and worker compensation. |
| Brookings Institution — Economic Studies Program |
www.brookings.edu (202) 797-6000 |
Research organization studying the determinants of U.S. productivity growth and proposing policy investments — in innovation, infrastructure, education, and R&D — that lift long-run productivity. Publishes the Hamilton Project policy briefs identifying labor market and investment reforms with the largest expected productivity dividends. |
| National Academy of Sciences — Board on Science, Technology, and Economic Policy |
www.nationalacademies.org (202) 334-2000 |
Produces definitive scientific assessments of the drivers of innovation, R&D investment, and productivity, informing federal science and technology policy. Its reports on federally funded R&D, STEM education, and technology diffusion directly shape Congressional appropriations that determine long-run U.S. productivity growth. |
| Information Technology and Innovation Foundation (ITIF) |
itif.org mail@itif.org (202) 449-1351 |
Leading science and technology policy think tank advocating for investment in innovation, digital infrastructure, and technology adoption as drivers of U.S. productivity growth. Publishes research on innovation policies that accelerate productivity-enhancing technology diffusion across sectors of the economy. |
| McKinsey Global Institute (MGI) | www.mckinsey.com/mgi | Research arm of McKinsey & Company producing analyses of global productivity trends and sector-specific opportunities for productivity improvement through technology, management innovation, and workforce development. MGI's global productivity analyses are the most widely cited private-sector assessments of the sources of and remedies for productivity slowdowns. |
| Aspen Institute — Economic Opportunities Program |
www.aspeninstitute.org (202) 736-5800 |
Research and policy program promoting job quality improvements — including wages, benefits, and job design — as drivers of worker productivity and economic performance. Advocates for evidence-based job quality standards as complements to technology investment in raising economy-wide productivity. |
| Congressional Budget Office (CBO) |
www.cbo.gov (202) 226-2600 |
Federal agency providing nonpartisan economic and budget analysis including the most authoritative projections of U.S. total factor productivity growth and its implications for long-run fiscal sustainability. CBO's productivity forecasts directly inform Congressional debate on tax policy, R&D investment, and regulatory reform as tools for improving economic productivity. |
Section 6: Individuals Advocating to Improve Productivity
| Name, Title & Contact | Selected Publications on Productivity |
|---|---|
| Robert J. Gordon, PhD Stanley G. Harris Professor in the Social Sciences, Northwestern University r-gordon@northwestern.edu |
(1) "The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War," Princeton University Press, 2016 — Argued that the productivity gains of the late 19th and 20th centuries were unique and irreproducible, challenging techno-optimism and framing the debate about what policies can realistically restore productivity growth.. (2) "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds," NBER Working Paper, 2012 — Identified the structural headwinds — inequality, education, debt, demographics — suppressing U.S. productivity growth and argued that policy reforms addressing each headwind are required to restore growth.. (3) "The Demise of U.S. Economic Growth: Restatement, Rebuttal, and Reflections," NBER Working Paper, 2014 — Responded to critics of the productivity pessimism thesis by providing additional evidence that innovation is producing diminishing productivity returns relative to the transformative inventions of the 20th century.. |
| Daron Acemoglu, PhD Elizabeth and James Killian Professor of Economics, MIT daron@mit.edu |
(1) "Why Nations Fail: The Origins of Power, Prosperity, and Poverty," Crown Publishers, 2012 — Argued that inclusive economic and political institutions are the fundamental determinants of long-run productivity and prosperity, with implications for domestic policy on competition, regulation, and democracy.. (2) "Automation and New Tasks: How Technology Displaces and Reinstates Labor," Journal of Economic Perspectives, 2019 — Distinguished between automation that replaces workers (reducing labor share) and technology that creates new tasks (increasing labor demand), informing policy on technology investment and labor productivity.. (3) "The Wrong Kind of AI? Artificial Intelligence and the Future of Labour Demand," Cambridge Journal of Regions, Economy, and Society, 2020 — Critiqued AI investment for focusing on worker automation rather than productivity-enhancing worker augmentation, proposing R&D tax incentives and regulations to redirect AI toward tools that raise total factor productivity.. |
| Erik Brynjolfsson, PhD Jerry Yang and Akiko Yamazaki Professor, Stanford HAI; Director, Digital Economy Lab, Stanford erikb@stanford.edu |
(1) "The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies," W.W. Norton, 2014 — Argued that the digital revolution is producing an exponential productivity boom analogous to the First Industrial Revolution, and proposed education and labor policy reforms to ensure broadly shared productivity gains.. (2) "The Productivity Paradox of Information Technology," Communications of the ACM, 1993 — Identified the IT productivity paradox — massive IT investment without corresponding productivity gains — and laid the groundwork for understanding the lag between technology investment and measured productivity.. (3) "Management Practices, Workforce Selection, and Productivity," Journal of Labor Economics, 2011 — Documented how management quality and information technology together explain a large share of firm productivity variation, supporting management training as a productivity investment.. |
| Dale W. Jorgenson, PhD Samuel W. Morris University Professor Emeritus, Harvard University djorgenson@harvard.edu |
(1) "Information Technology and the U.S. Economy," American Economic Review, 2001 — Documented the IT-driven productivity acceleration of the late 1990s and attributed it to semiconductor price declines and IT capital deepening, providing the framework for measuring technology's contribution to productivity.. (2) "Productivity, Volume I: Postwar U.S. Economic Growth," MIT Press, 1995 — Comprehensive measurement of U.S. productivity growth sources since World War II, establishing the methodology used by the Bureau of Labor Statistics and academic researchers to estimate total factor productivity.. (3) "Capital Income and Growth Accounting: A New Perspective," Journal of Economic Growth, 2007 — Revised growth accounting methodology to better capture the contribution of R&D, human capital, and information technology to productivity, influencing national income accounting reforms.. |
| Laura D. Tyson, PhD Distinguished Professor of the Graduate School, Haas School of Business, UC Berkeley; Former Chair, Council of Economic Advisers ldtyson@haas.berkeley.edu |
(1) "The Benefits of Federal Investment in R&D for U.S. Productivity and Long-Run Economic Growth," Council of Economic Advisers, 2016 — Quantified the productivity returns to federal R&D investment, finding rates of return of 20–50%, and recommended expanding federal R&D spending as the highest-return productivity investment.. (2) "Investing in Capabilities: A Strategy for Restoring U.S. Economic Growth and Competitiveness," Center for American Progress, 2015 — Proposed a national investment strategy prioritizing R&D, education, and infrastructure as the three pillars of U.S. productivity growth restoration.. (3) "The Competitiveness Challenge: The U.S. Economy in the 21st Century," Human Frontiers Press, 1994 — Analyzed the structural factors — including technology, education, and trade policy — determining U.S. international competitiveness and long-run productivity performance.. |
| Nicholas Bloom, PhD William D. Eberle Professor of Economics, Stanford University nbloom@stanford.edu |
(1) "Are Ideas Getting Harder to Find?," American Economic Review, 2020 — Documented that the number of researchers required to produce productivity-enhancing innovations has increased dramatically, suggesting that maintaining productivity growth requires ever-larger R&D investments.. (2) "The Impact of Competition on Management Quality: Evidence from Public Hospitals," Review of Economic Studies, 2015 — Showed that management quality — which varies enormously across firms — is a primary driver of total factor productivity, supporting management training and information interventions.. (3) "Why Do Management Practices Differ Across Firms and Countries?," Journal of Economic Perspectives, 2010 — Documented global variation in management quality and linked it to productivity differences, arguing for policy interventions — training, competition, labor market reform — that raise management standards.. |
| Anna Stansbury, PhD Assistant Professor of Work and Organization Studies, MIT Sloan School of Management stansbury@mit.edu |
(1) "The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy," Brookings Papers on Economic Activity, 2020 — Argued that declining worker bargaining power — not technology or globalization — is the primary driver of the U.S. productivity-pay gap, and proposed labor market reforms to restore shared productivity gains.. (2) "Productivity and Pay: Is the Link Broken?," NBER Working Paper, 2018 — Documented the divergence between U.S. aggregate productivity and typical worker compensation since 1973 and evaluated institutional explanations including union decline and corporate governance changes.. (3) "Redistributing Income, Restoring Productivity: The Case for Worker Power," Hamilton Project / Brookings, 2021 — Proposed policies to strengthen collective bargaining and worker voice as mechanisms for ensuring productivity gains are broadly shared and workers remain invested in productivity-improving work practices.. |
Frequently Asked Questions
Where does the United States rank in Total Factor Productivity globally?
The United States ranks 3rd globally in Total Factor Productivity with a TFP index of 1.38 as of 2022, according to Penn World Tables and Organisation for Economic Co-operation and Development (OECD) estimates. Ireland and South Korea (Hanguk) rank above the U.S. due to high-value multinational activity and exceptional R&D intensity respectively.
What drives the United States' high Total Factor Productivity?
The U.S. benefits from the world's largest R&D ecosystem funded by agencies like NSF, NIH, and DARPA, as well as deep capital markets and a leading venture capital industry. Top universities such as MIT, Stanford, Harvard, and Caltech continuously generate human capital and commercializable research that fuels innovation and productivity.
Why doesn't the United States rank first in Total Factor Productivity?
Smaller economies like Ireland and South Korea have achieved marginally higher TFP levels through concentrated high-value sectors and strong R&D intensity. Additionally, U.S. TFP growth has slowed due to declining business dynamism, growing market concentration, and lagging infrastructure investment.
What has Ireland done to achieve the highest Total Factor Productivity?
Ireland attracted multinational corporations in pharmaceuticals and technology through a competitive 12.5% corporate tax rate, the Industrial Development Authority's FDI support, and a 25% R&D Tax Credit regime. Science Foundation Ireland funds frontier research clusters, and the National Development Plan (2021–2030) commits over €165 billion to infrastructure including broadband.
What is the most recent U.S. Total Factor Productivity estimate available?
For 2023, the U.S. TFP index is estimated at approximately 1.39, reflecting modest continued growth. This incremental increase is primarily attributed to AI-related productivity gains in the services sector.
What data sources are used to measure Total Factor Productivity across countries?
The primary sources are the Penn World Tables 10.01 from the University of Groningen, the Organisation for Economic Co-operation and Development (OECD) Compendium of Productivity Indicators (2023), the World Bank Gross Domestic Product (GDP) per capita data, and The Conference Board Total Economy Database. These sources collectively provide internationally comparable TFP estimates with a primary reference year of 2022.
About the Author
Ronald Bonfilio has devoted his career to public service spanning more than five decades. His service began with the U.S. Army from 1966 to 1968, where he conducted medical laboratory research at Fort Detrick and at the Walter Reed Army Institute of Research. He subsequently held a distinguished series of federal positions, including roles with the National Cancer Institute, the National Institutes of Health, the U.S. Agency for International Development (Vietnam), the Special Inspector General for Iraq Reconstruction, and the U.S. State Department (Iraq), where he served as a Senior Economic Advisor and Agricultural Advisor. He also served 15 years with the U.S. Government Accountability Office as a Program Analyst and Auditor.
Ronald Bonfilio holds a degree in Economics from the University of Maryland, and degrees in Chemistry and a Master of Business Administration from the University of Massachusetts. He is a former Certified Public Accountant.