Why your kids won't have a better life than you

Looks like future generations won't be living like the Jetsons any time soon. Image/Supplied.

We all like to think that when our children grow up they will have a better standard of living than us.

But it seems that may no longer be the case - unless we start getting more productive with our time.

Speaking yesterday US Federal Reserve Bank chair Janet Yellen justified her decision not to increase the cash rate too quickly by saying it wasn't needed because of slow productivity growth.

While that's good news for borrowers it could signal a bum note for the next generation.

Yellen says that over the last 30 years productivity - or the output of goods and services per hour of work - has grown by a bit more than 2 per cent per year which roughly equates to the average standard of living doubling every 35 years.

In the past that has meant our children could reasonably hope to be better off economically than we are now.

But in the US, productivity growth has averaged just half a per cent a year for the last six years and over the last decade it has grown on average just 1.25 per cent a year.

Yellen says productivity growth of just 1 per cent a year means it will take 70 years for the average standard of living to double.

The trend has not been so stark here.

According to Statistics New Zealand between 1987 and 2015 average annual productivity growth was 2 per cent.

But in 2015 there was zero growth. Figures for 2016 won't be out until July.

Yellen says the reasons for the productivity slow-down are not fully understood but economists have pointed to faster technological progress, flatter college graduation rates than previous generations and a dramatic slowing in the creation of new businesses.

"While each of these factors has likely played a role in slowing productivity growth, the extent to which they will continue to do so is an open question," she says.

What it all means is that the economy's usual rate of output growth will be significantly slower than the post-World War II average.

Standards of living have improved a lot over that time but it looks like our kids won't be living like the Jetsons anytime soon.