Newspaper article International New York Times

Advance of Technology Hasn't Averted a Slowdown in Labor Productivity

Newspaper article International New York Times

Advance of Technology Hasn't Averted a Slowdown in Labor Productivity

Article excerpt

New research questions the notion, popular in tech circles, that the benefits of technology are making up for mediocre gains in productivity and wages.

American middle class wages haven't been rising as rapidly as they once were, and a slowdown in productivity growth is probably an important cause.

In mature economies, higher productivity typically is required for sustained increases in living standards, but the productivity numbers in the United States have been mediocre. Labor productivity has been growing at an average of only 1.3 percent annually since the start of 2005, compared with 2.8 percent annually in the preceding 10 years. Without an improvement in productivity growth, living standards will continue to lag, this widely held narrative concludes.

Not everyone views the situation this way. For instance, Marc Andreessen, the Silicon Valley entrepreneur and venture capitalist, says information technology is providing significant benefits that just don't show up in the standard measurements of wages and productivity. Consider that consumers have free access to services like Facebook, Google and Wikipedia, and those benefits aren't fully accounted for in the official numbers. This notion -- that life is getting better, often in ways we are barely measuring -- is fairly common.

Until recently, this debate was inconclusive. It consisted mainly of anecdotes, with individuals describing how important advances like the Internet were -- or were not -- to them personally. But now Chad Syverson, a professor of economics at the University of Chicago Booth School of Business, has looked more scientifically at the evidence and concluded that the productivity slowdown is all too real. These results are outlined in his recent National Bureau of Economic Research working paper "Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown."

Professor Syverson notes that a slowdown has come to dozens of advanced economies, more or less at the same time, which indicates it is a general phenomenon. Furthermore, the countries with smaller tech sectors still have comparably sized productivity slowdowns, and that is not what we would expect if a lot of unmeasured productivity were hiding in the tech industry.

An additional problem for the optimistic interpretation is this: The productivity slowdown is too big in scale, relative to the size of the tech sector, to be plausibly compensated for by tech progress. Basically, under a conservative estimate, as outlined by Professor Syverson, the productivity slowdown has led to a cumulative loss of $2. …

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