On Sep 21, 2007, at 6:30 PM, raghu wrote:
If I understand correctly much of the late 90's productivity gains came from the computer industry itself. i.e. businesses buying all those computers were not getting much for it, but the computer industry being dominated so heavily by fixed costs, any additional sales of say a Pentium chip or Oracle software would be almost pure profit thereby generating massive apparent productivity gains. http://www.nber.org/~confer/2001/prods01/stiroh.pdf
No that's not Stiroh's argument. Gordon made that argument in the late 1990s, but subsequently dropped it. Here's Stiroh's abstract:
This paper examines the link between information technology (IT) and the U.S. productivity revival in the late 1990s. Industry-level data show a broad productivity resurgence that reflects both the production and the use of IT. The most IT-intensive industries experienced significantly larger productivity gains than other industries and a wide variety of econometric tests show a strong correlation between IT capital accumulation and labor productivity. To quantify the aggregate impact of IT-use and IT-production, a novel decomposition of aggregate labor productivity is presented. Results show that virtually all of the aggregate productivity acceleration can be traced to the industries that either produce IT or use IT most intensively, with essentially no contribution from the remaining industries that are less involved in the IT revolution.
So it's computer production plus heavy computer users (e.g., Wal-Mart).
What is surprising is productivity did not actually drop merely decelerated after the crash. Maybe it has something to do with mass layoffs, or maybe with some real gains from technology like targeted advertising on Google. But I suspect part of the explanation is in the accounting of outsourcing activities.
There definitely may be a problem with accounting for outsourcing. But trend productivity growth is now below 2%, which is pretty sucky. Doug
