A Decomposition of U.S. Business Sector TFP Growth into Technical Progress and Cost Efficiency Components

A problem with index number methods for computing TFP growth is that during recessions these methods show declines in TFP. This is rather implausible since it implies technological regress. We develop a new method to decompose TFP growth into technical progress and inefficiency arising from the short run fixity of capital and labour, and apply this to new data on the US Corporate Nonfinancial Sector and the Noncorporate Nonfinancial Sector. The analysis sheds light on sources of the productivity growth slowdowns over the period 1960 to 2014