US productivity after the dot-com bust

By Diana Farrell, Martin Baily, Jaana Remes

A sector-by-sector analysis unveils the sources of continued productivity growth in the US, even after the dot-com collapse in 2000.

When the dot-com bubble burst, many observers expected US productivity growth to fizzle out. But productivity continued to grow at an impressive 2.6 percent. Why?

MGI's analysis suggests that productivity growth has held up well primarily because fewer sectors have seen declines in productivity, possibly the result of successful efforts by companies to cut costs. And the data shows plenty of scope remaining for most sectors to produce more for less in the coming years.

Previous MGI research showed that managerial and technological innovations in just 6 out of the economy's 59 sectors accounted for virtually all net productivity growth between 1995 and the end of 1999. A look at US productivity performance between 1998–2003 found that over those five years, seven sectors accounted for 85 percent of total productivity growth over the period.

Interestingly, productivity growth since 2000 is somewhat less concentrated among the big hitters than before: between 1998–2000, the top four sectors represented 100 percent of total growth; from 2000–2003 the top seven sectors contributed only 75 percent of the total. And a much broader set of service industries have also seen their productivity growth speed up. As a result, five of the top contributors to the productivity acceleration after 2000 were service industries—good news, given that services represent 70 percent of US employment today.

More from the McKinsey Global Institute
Report

Remaking the bank for an ecosystem world

Interactive - McKinsey Quarterly

Five Fifty: Evaluate this

Interactive - McKinsey Quarterly

Five Fifty: The digital effect

Commentary - McKinsey Quarterly

Wellness at work: The promise and pitfalls