NCPA - National Center for Policy Analysis

Growth And The Computer Connection

April 14, 1999

For years, economists have searched in vain for a correlation between the advent of high-tech and increases in productivity. As products from computers to software to cell phones permeated the economy, the output of goods and services per worker stagnated -- barely rising 1 percent annually.

Finally, the effect seems to be showing up.

  • Productivity growth began to pick up starting in 1996 -- capped by a surge in the second half of last year.
  • Productivity growth has been averaging about 2 percent in the past three years -- roughly double the pace from 1973 to 1995.
  • Past upward swings in productivity typically occurred early in a recovery -- but in this instance the economy had been bounding along for eight years.
  • Economists have recently been running new calculations that show all that investment in high-tech may be beginning to pay off -- now that workers have learned to employ their new technological tools, as well as their own skills, more efficiently.

Experts say that if this technology dividend is real, the Federal Reserve can be less fearful of inflation and can keep interest rates stable. Indeed, Fed Chairman Alan Greenspan recently referred to "higher, technology-driven productivity growth" in testimony before Congress.

All this suggests that the government's tools for measuring growth may be antiquated and new scales must be developed. For example, official banking statistics give the impression banks are no more productive today than they were two decades ago -- taking scant account, say, of 24-hour automated teller machines, which are clearly a productivity improvement.

Source: Steve Lohr, "Computer Age Gains Respect of Economists," New York Times, April 14, 1999.


Browse more articles on Economic Issues