NCPA - National Center for Policy Analysis

Computers Contribute To Productivity

March 15, 2000

"You can see the computer age everywhere but in the productivity statistics," Nobel economics laureate Robert M. Solow said in 1987. And for more than a decade economists have been looking for a link between improvement in productivity and the vast investments of business in computers and other high-tech equipment. Now, Solow says, "You can see computers in the productivity statistics."

Indeed, two Federal Reserve economists, Stephen D. Oliner and Daniel E. Sichel, have confirmed the computer's impact in a soon to be released study. Five years ago, they looked for the computer's impact on productivity and found little.

  • In the new study, they find the annual rate of productivity growth has risen by more than one percentage point above the roughly 1.5 percent average gain from 1973 to 1995.
  • Some 25 percent of that increase in the productivity growth rate is due to improvements in manufacturing -- especially of computers and semiconductors.
  • Another 44 percent of the improvement is due to the efficiencies that result from how people utilize information technology.
  • And 31 percent of the one percentage point improvement in productivity growth is due to other factors.

The researchers do not estimate how much of the productivity growth is permanent and how much will persist through the next recession, although they conclude that a "sizable portion" will persist.

Source: Louis Uchitelle, "Productivity Finally Shows the Impact of Computers," New York Times, March 12, 2000.


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