Industry Sector and Productivity Growth: Potential Bias of Information Technology Intensity in Services

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ABSTRACT

Overall, productivity growth may be underestimated in the U.S.; despite continued progress, measurement and conceptual barriers remain. The concerns about underestimation of productivity growth have been focused on data for the business sector, especially its service components. Services, broadly defined, include all producing activities outside the goods sector. Productivity in the service sector has not grown as rapidly as productivity in the manufacturing sector. Anecdotal accounts of improvements in technology due to the method of measurement for the two different areas have been similar, which is why the measurement is incorrect. The productivity data does not fully reflect changes in the quality of goods and services due to the new concepts and considerations that must be taken into account in order to evaluate the accomplishments of the service industries, as opposed to the simple manufacturing industries. Economists have to determine if the best techniques are used to introduce new, advanced products into the data series. Current techniques do not capture the impact of new information technology on economic performance. This is why statistics may help to clear up ambiguities and start provide a fresh outlook to properly analyze successes of the service industries as a result of information technology.

INTRODUCTION

Economics, like every social science, is incomplete and therefore constantly evolving. A central concern of economics has to do with productivity--the ability to grow wealthier by extracting more value from the same amount of labor. Productivity is the measure of economics, which is the study of how a society uses its limited resources to produce, trade, and consume goods and services. In other words, the world has to satisfy unlimited wants with limited resources.

Looking at the constantly growing amount of new products and technological improvements at the end of the twentieth century, people are tremendously impressed. It seems logical that these inventions and improvements are increasing consumer welfare, and the technical innovations are contributing to output. Then why is the question of whether or not these new products and technological improvements are increasing at a noticeable rate? Logical reasoning supposes one thing, but officially, reported numbers do not support this assumption of productivity growth.

Economic statistics provided by the government demonstrate a modest rise in productivity numbers, which are not consistent with the highly increasing technological advances occurring across the economy. Economists, along with the rest of the world, see more new products, more changes in consumer service, more technical changes, and other innovations. The only problem is that these observations, while promising in terms of growth, are also consistent with the relatively minor increase in government productivity numbers. Many economists go as far to proclaim that society has been experiencing a productivity slowdown despite the apparent growth.

PRODUCTIVITY RELATIONSHIPS

Even though computers are not the only factor that affects an economy, the world will utilize computer technology as the center of improvement. Since the development of the first computers, society has not only changed in the way people conduct business, but also in the growing efficiency of aspects of daily life. One example is the ability to visually see a person several hundred miles away instead of simply being able to communicate by voice alone. This is achieved with the invention of the computer along with the voice transmission and visual images brought about using programs such as the Netmeeting software.

The relationship between information technology (IT) and productivity is widely discussed but little understood (Brynjolfsson, 1993). Delivered computing power in the U.S. economy has increased by more than two orders of magnitude since 1970, yet productivity in the service sector has stagnated. Because improvements such as technical changes and new product discoveries reportedly bring cause a decrease in government measurements of productivity, many believe that there must be some discrepancy in the data collection and/or analysis (Dean, 1995). Historically, an advancement in industry was the idea of mass production or assembly lines. The complicated production process was broken down to general, less complex tasks that could be performed by one person or a small group. Each person or small group specialized in one task and became very proficient as a result. This increased the quality of the product and speed of production because chances of error are less pronounced when simple duties are performed consecutively. Concurrently, the individual or group became so familiar with the designated job that they produce faster the higher quality products than did one …