A McKinsey study addresses the “productivity puzzle”. However, there is no puzzle and there never was a puzzle.

Inquiring minds are diving into a the McKinsey study on Solving the Productivity Puzzle.

While there are many schools of thought, we find three waves collided to produce a productivity-weak but job-rich recovery, with productivity growth falling on average to 0.5 percent in the 2010–14 period compared to 2.4 percent a decade earlier.

These three waves are: the waning of a productivity boom that began in the 1990s, financial crisis after effects including persistent weak demand and uncertainty, and digitization. The third wave, digitization, is fundamentally different from the first two because it contains the promise of significant productivity-boosting opportunities, yet the benefits have not materialized at scale. This is due to adoption barriers, lags, and transition costs such as the cannibalization of incumbent revenues.

US vs Average Productivity

Germany vs Average Productivity

The charts of Italy, France, and Germany look the same. WWI and WW2 are heavy influences. Having a war fought in your country is not a boon to productivity.

Three Waves

Wave 1 is the declining impact of the internet revolution. Wave 2 represents the aftermath of the great financial crisis. McKinsey claims wave three will be digitization-related productivity boom.

McKinsey claims “weak demand” dampened current productivity growth. There is not weak demand and rising credit card debt proves it.

Homes sales are weak, not because of lack of demand but because they are not affordable. The study did not mention the role of the Fed as a reason.

The study states the “Rise of Amazon and the wave of digital disruption occurring in the retail industry added to productivity growth from the shift to more productive online channels. Yet the growth was accompanied by transition costs, duplicate structures, and drags on footfall in traditional stores.”