The government's official 'growth' numbers are basically fake. We’ve been calculating the value of government work wrong for years.
March 27, 2026
Original Paper
Government Services, Wage Dynamics, and Growth Mismeasurement
SSRN · 6358858
The Takeaway
National accounts measure the value of government services based on what they cost (salaries) rather than what they produce. Because public wages rise alongside private sector productivity without necessarily producing more, we are effectively counting rising government costs as economic 'growth,' leading to a consistent inflation of global GDP stats.
From the abstract
National accounts value government services at input cost, which can distort measured GDP growth if public productivity differs from private productivity. I document a systematic gap between growth rates reported to the IMF and those in the Penn World Tables, which adjust for government costs using explicit government price indices. This gap increases with government size and remains robust to income and growth controls. I formalize a mechanism in which public wages track private wages, transmit