NCPA - National Center for Policy Analysis

Information Technology Boosted Productivity in Services

February 12, 2004

U.S. productivity has continued to grow strongly. New research suggests that productivity growth in service sectors of the economy has outpaced manufacturing, and that information technology is responsible for much of the growth.

Productivity is the measure of workers' output for a given value of inputs. Its growth is responsible for most economic progress:

  • From 1948 to 1973, productivity grew at close to 3 percent annually, doubling the living standard in that period.
  • Then came the dark age of productivity growth: from 1974 to 1994, it averaged only 1.4 percent a year.
  • From 1995 to 2000, we had something of a productivity renaissance, with growth climbing to more than 2.5 percent a year.
  • From 1995 to 2001 labor productivity in services grew at a 2.6 percent rate, outpacing the 2.3 percent rate for goods-producing sectors.
  • Some 24 out of the 29 service industries they studied exhibited growth in labor productivity after 1995, and 17 experienced accelerated growth.

Information technology has become so powerful and so cheap that productivity enhancements spread through the economy -- even to small and medium-size service enterprises. It is a lot easier now for sellers to track inventory, monitor operations, communicate with customers, and react to shifts in demand. Today any family-run video store or restaurant can buy a smart cash register that not only tracks purchases but also monitors inventories.

Source: Hal Varian (University of California at Berkeley), "Information Technology May Have Cured Low Service-Sector Productivity," Economic Scene, New York Times, February 12, 2004.


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