Worker productivity is screeching to a halt and it may be the government's fault

According to economists at Citi, it isn't that workers are getting lazier, but instead that technology has distorted productivity measurements to the point where the government agencies tasked with determining it can no longer get an accurate number.

The government uses productivity as a gauge of improving living standards, and it factors into projections for GDP growth.

Better productivity also helps firms make more money.

Productivity growth, however, has slowed to a trickle in recent years.

"In the US measured (productivity) growth averaged around 3% (annually) during the period 1996-2004, but fell to 1.5% in 2005-12 and more recently has slipped even further to around 1%," Citi wrote in a recent note to clients.

Last week, the Labor Department reported that productivity grew only 1.3% in the second quarter, disappointing many economists.

Citi, however, argues that this report doesn't match up with anecdotal reports of innovation booms and increased abilities for workers to get things done.

Citi makes 3 key arguments:

1. The measures don't understand the actual value of what we do

Productivity tells us how much an act is contributing to GDP, but that is not always easy to do.

"Griliches and Gordon, among others, have argued that the value added of many service sectors and of construction are much more difficult to measure than the value added of other sectors, and the share of these so-called 'hard to measure' sectors has grown in importance over the last half century in the US as well as in most other economies," said the Citi economists.

2. The measures can't keep up with all the new products being developed

A long standing issue with GDP and productivity measures is that since the Bureau of Labor Statistics shifts the types of products analyzed every 5 years, the measures are missing out on new ideas and jobs.

"If there are more new products/new producers (relative to the stock of unchanging products and producers) than in the past, an increasing downside bias to GDP or productivity statistics would result," Citi said.

3. The measures are missing the growing informal economy

These productivity measures use data from things that are sold and how much the items are sold for, but that doesn't cover a growing amount of the economy.

"At least anecdotally, the size of activities which are (at least in a monetary sense) free at the point of use is also rising fast, including the ever-growing list of apps on mobile phones, and all sorts of other content available through various media," the report said.

And according to Citi, "Overall, the combination of the various measurement issues for GDP and productivity growth probably explains a significant part of the slowdown in measured productivity in the advanced economies, perhaps at least half of it, in our view."