Intangibles, Markups, and the Measurement of Productivity Growth

Measured TFP growth in the US has declined since the late 1990s. We argue that the combination of two forces - the growing importance of intangible capital and rising rents - contributed to this decline. Intangibles omitted from measures of the capital stock bias measured TFP growth downward by misstating capital growth. However, the corresponding omission of investment in GDP would lead to a counterfactually high measured labor share. Rising rents induce an opposing bias which offsets this labor share effect. Hence, the biases from intangible capital and rents reinforce one other. Using the input-output tables, we estimate that these forces could account for one-third to one-half of the decline in measured TFP growth.