Arnold Kling  

The Productivity Story, Continued

Fogel Vs. Wonks... Regulate Mutual Funds?...

I put together a simple table of productivity performance over the last forty years.

The table helps to demonstrate what Brad DeLong is talking about. The 17 percent productivity growth from the first quarter of 2000 to the first quarter of 2004 stands head and shoulders above the growth rate for any comparable period. In fact, it is better than any eight-year period since 1976. In the first 13 quarters of the Bush Administration, the basic determinant of our standard of living increased by almost as much as during the entire 32 quarters of the Clinton Administration.

As far as I know, President Bush has not claimed credit for the phenomenal productivity growth that has occurred during his Administration. Nor should he...Productivity growth in any given Presidential term is affected much more by private sector trends and by policies of previous Administrations than it is by current policies.

For Discussion. In 1987, Robert Solow quipped that "computers are everywhere but in the productivity statistics." Economists call this the Solow Paradox. Does the recent good news on productivity spell the end of the Solow Paradox?

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CATEGORIES: Growth: Consequences

COMMENTS (9 to date)
rvman writes:

I see no reason to attribute the productivity boom to "computers" when technology sales have been so famously down for the past few years. It is POSSIBLE that the productivity boom is due to people finally being allowed to keep the same systems for more than two or three years, and thus not having to spend half their time "training" to use the new system or looking stuff up in manuals, and finally allowing the productivity gains from the familiar to come forth. It is also possible that employers have figured out that the time their IT departments spent installing new software to replace perfectly good old software, new hardware to replace perfectly functional old hardware, and training to learn new systems the company doesn't even use, was waste from the perspective of the company (though lucrative to the IT worker who is now more employable elsewhere), and now are using their IT departments more efficiently. (Read, made them much, much smaller.)

Mike Everett writes:

I suspect that rvman is too young to remember the era when companies employed battalions of white-shirted guys with pocket protectors and adding machines to complete calculations that the computer I'm using could wrap up in less than a second.

I don't disagree with rvman, but tech sales don't necessarily reflect creative or efficient use of technology. Just as we immediately grasp that the introduction of the steam engine meant that - in due time - steam engines were "everywhere" underlying productivity gains, a similar process obtains with computers.

Joe Deely writes:

My take on this is that people are finally figuring out how to use the technology efficiently.

However, I also believe there is huge room for improvement. Anyone who has come back from a vacation and spent a day or two dealing with 600-1000 emails - most of which are unimportant - can attest to this.

Arnold, I have a question for you. How are the number of hours worked obtained? Are these just hourly workers?

I have seen in my admittedly small sample of workplaces(30+ companies) a large increase in the hours worked for many "white collar" workers. It appears that employers are squeezing their employees instead of hiring new workers. A 50-60 hour work week is the norm for many of these people.

Any comment on this? Is this increase factored into the numbers?

Bernard Yomtov writes:

Yet another question. Is there some sort of marginal vs. average issue here? That is, it seems to me that lower levels of employment automatically imply higher average productivity, because marginal product declines.

Is this correct? Does it have a significant effect on these numbers?

Edday writes:

I wonder if the case might be that the sectors that are dominated by computer technology have finally emerged as the leading producers of output, i.e., what we observe is a measurement shift.

GW writes:

I am interested in the definition of "hours" in the denominator. Is it assumed, for instance, that salaried, exempt employees work 40 hours for this calculation? This will skew the ratio.

Also, there is product lifecycle to consider. Companies can reap the profits of products for several years after they are released, while in that time their staff can be "right-sized" again skewing the ratio.

Walker writes:

The Solow Paradox probably ended in the mid-90's when the U.S. government adjusted its methodology for calculating inflation. Most significant are the application of Hedonic pricing methods to computers and peripherals. To the extent that these changes lower the inflation numbers, they also boost the U.S.'s GDP and productivity numbers. There are other factors involved, of course, but when making comparisons over a 40 year stretch the differences in methodology should be kept in mind.

Dmytri Kleiner writes:

Some questions:

- Calculations? I would like to know the basic formula used to determine this 'productivity.'

- 'Value Added' -- does Increased foreign environmental and labour exploitation 'increase American productivity' by inflating the percentage of state-side value added? Perhaps foreign child and slave labour makes Americans more 'productive'

- Same question regarding local exploitation as asked by others, does //increased work hours// explain part of the productivity increase.

- Also as asked by others, since the marginal productivity of labour faces a disefficiency of scale, does a shirking labour force increase productivity?

- AND MOST IMPORTANTLY: Is this 'increased productivity' translating into greater average wealth, or simply greater economic rents? I would be interested in the answer both on a national level (in the US) and an answer that includes the welfare of foreign workers.

- Finally, with since war spending has an income effect and yet produces no consumer goods, it should have an inflationary effect. Could it be that there was simply //suboptimal exploitation of existing productive capacity// which is being maximized by war-income created demand.

- Finally (part II) Would more productive social spending have achieved the same thing?)

- And finally (part III), can any part of the //suboptimal exploitation of existing productive capacity// be that we where not exploiting local and foreign slave labour as much and destroying the environment as quickly before?

So many questions I would like to have answered before I start celebrating this new productivity!

And just for fun: Didn't Stalin's Russia have productivity growth of over 20% on a regular basis?

Lawrance George Lux writes:

In 1987, Robert Solow quipped that "computers are everywhere but in the productivity statistics." Economists call this the Solow Paradox. Does the recent good news on productivity spell the end of the Solow Paradox?
It is still there! Even you do not come up with statistical data on how many Workers were recycled into other employment, and the degree of loss/gain from moving from their old salary to the new startup salary. There is no statistical data tracking these workers over time, to tell if later employment wages improved for them. Finally, there are no statistics to show the total gain/loss in Dollar terms for the composite replaced Labor for each period cited. lgl

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