Acceleration In Productivity Growth Research Articles

Impact of Digitalisation on Economic Growth, Productivity and Employment

Abstract Since the industrial revolution, technological innovations have enabled rise in productivity, employment, standard of living and the total population several times. In the last 15 years productivity growth has slowed-down in the most of large economies, probably due to slow diffusion of advanced IT solutions, but also due to inadequate statistical measurement of the value of IT services and slow progress in complementary and other technologies. The acceleration of productivity growth in the future is possible to foster through larger public investment in infrastructure and fundamental research, tax incentives and subsidies attached to innovations in the private sector, as well as through promotion of entrepreneurship and the reform of education system. The development and diffusion of digitalisation and other technologies is expected to trigger a slight acceleration in productivity, while explosive growth in productivity, as predicted by some theoreticians, is not likely to happen. The net effect of digitalisation on employment will be probably negative, but it is uncertain how much will be offset by a rise in availability of goods and services and creation of new types of goods and services. Employment will depend on the speed of adjustment of education system to technological changes and labour market requirements, as well as on the possibilities for vocational education and change in qualifications. An important reserve, which may reduce a drop in employment and enhance the welfare of citizens, lies in additional reduction of the working hours. In the long run, it is expected that the world population growth is to slowdown and then become negative, which will lead to a decrease in the labour force. In that case, full employment will be attained even with the decline in the number of jobs. In case of long-term massive unemployment, there is also an option for introduction of universal basic income or other type of social benefits, in order to prevent a significant rise in economic inequality.

Long-Term U.S. Productivity Growth and Mobile Broadband: The Road Ahead

This paper focuses on the potential of future wireless networks to support U.S. economic growth to 2030. We consider the economic implications of next generation wireless networks for long-term productivity growth and living standards, and relate those to current public policy questions. The result could be an acceleration of productivity growth in the physical industries that adds roughly $2.7 trillion (in 2015 dollars) to U.S. GDP by 2030. This translates into an 11 percent increase in economic output, which is equivalent to boosting the average annual growth rate by 0.7 percentage points. This paper makes three main points. The United States is currently stuck in a slow-growth trap, which is holding down wages and living standards. We show that slow productivity growth today is correlated with the failure of “physical” industries such as manufacturing, health care, and construction to make good use of digital technologies, compared to “digital” industries such as professional services, finance, and entertainment. We estimate that physical industries, which make up roughly 80 percent of the private sector, account for only 35 percent of private infotech investment, and only 40 percent of telecom usage. Using a top-down analysis, we suggest that successfully digitizing physical industries will require a vast increase in remote sensors and remote-controlled devices such as cars, drones, and construction equipment. True, in the short-run, machine-to-machine (M2M) wireless traffic will still only be a small portion of mobile data. Cisco forecasts that M2M wireless traffic in the United States, including wearables, will rise from 3 percent to 11 percent of all mobile data by 2020. In this paper, we further project that IoT-related M2M communications will account for roughly 35-47 percent of mobile data communications by 2030. To boost productivity of physical industries, M2M communications will occupy a much larger share of available bandwidth.Achieving this level of connectivity and productivity improvement will require a sharp increase in the capacity of the nation’s mobile broadband networks. The nature of the capacity increase will depend on the development of technology. Using an analysis based on historical trends, we project that by 2030 it will be necessary to have over 1900 MHz of spectrum in the sub-mmW bands (3 times current availability) and at least 1.2 million cell sites (4 times current level) to fully enable the IoT-driven productivity gains in physical industries over the next fifteen years. By contrast, extensive use of mmW bands, if technologically and economically feasible, will require the deployment of a vast number of additional small cell sites that will require ongoing maintenance.The conclusion: Creating vastly more wireless capacity is essential for getting the United States out of the slow-growth trap we are currently stuck in. In order to catalyze the next round of spectrum-enabled economic expansion, policymakers need to focus on freeing up multiples of the current amount of spectrum — both for licensed and unlicensed uses — while creating an economic environment in which it is profitable to build and maintain a greatly expanded number of cell sites.

Antitrust in High-Tech Industries

Recent economic growth has been led by high-technology industries (See Jorgenson, Ho & Stiroh (2005) for a summary of the research on the recent acceleration of productivity growth). Many firms in these industries have achieved a dominant market position, thereby attracting the attention of competition authorities, often resulting in major monopolization cases. Unfortunately, this attention has not resulted in improved market outcomes. In this paper, we evaluate the effect of Section 2 Sherman Act cases brought against IBM, ATT rather they should focus their remedies on promoting innovation—new products that replace or compete with the dominant firm’s products.

Growth and Renewal in the United States: Retooling America's Economic Engine*

New research by the McKinsey Global Institute (MGI) examines the growth challenge facing the United States and explores how U.S. business and government can contribute to the economy's renewal by reinvigorating their drive toward higher productivity.As baby boomers retire and the female participation rate plateaus, the U.S. economy will receive significantly less lift from increases in the labor force and will have to rely increasingly on productivity gains to fuel growth. The report finds that the United States needs a 34% acceleration in productivity growth if it is to match the GDP growth rates of the past 20 years—and that this is possible.Three‐quarters of the necessary productivity growth acceleration can come from the efforts of private‐sector companies operating within the current regulatory and business environment. Even the best‐performing companies and sectors still have headroom to boost productivity by emulating the best practice of others and tapping into new innovations, and coming up with new innovations of their own. The remaining one‐quarter—and more—can come from government and business working together to address barriers that now limit growth.MGI lays out a seven‐point agenda for action to spur productivity.

Revisiting African Agriculture: Institutional Change and Productivity Growth

Building on a recent analysis of total factor productivity growth in African agriculture, this paper revisits the political economy underpinnings of policies affecting agriculture. We examine the effect of institutional change on the productivity performance of African agriculture. Our central finding is that institutional change in the form of competitive presidential elections has played an important role in driving a resurgence of productivity growth. The emergence of electoral competition in Africa changed policymakers’ incentives, resulting in both sectoral and macroeconomic policy reforms favorable to agriculture, following decade of policy discrimination against agriculture. These reforms, to varying degrees, contributed to an acceleration of productivity growth in African agriculture.

ICT and productivity growth in the 1990s: panel data evidence on Europe

What has been the quantitative effect on productivity growth of information and communication technology (ICT) in Europe after 1995? Based on a multi-country sectoral panel data set, the authors provide econometric evidence of positive and significant productivity effects of ICT in Europe, mainly due to advances in total factor productivity. The impact of ICT in Europe has happened against a negative macro economic shock not related to ICT. This is in contrast to the established evidence for the US. Our main results challenge the consensus in the growth-accounting literature that there has been no acceleration of productivity growth in Europe, mainly due to a dismal performance of ICT-using sectors.

Accounting for change in national systems of innovation: A friendly critique based on the U.S. case

This paper advances a friendly critique of the national systems of innovation approach and offers some suggestions for its future development. I argue that the approach has difficulty accounting for bounded change in national systems. I review three recent changes in the U.S. innovation system – the Internet boom and bust of the late 1990s and early 2000s, the response to the terrorist attacks of September 11, 2001, and the acceleration of productivity growth since the mid-1990s – in order to assess the strengths and weaknesses of the framework in this respect. Future research might be enriched, at least in the case of large national innovation systems, by absorbing concepts developed in other strands of institutionalist literature, such as “intercurrence” and “embeddedness”.

Consequences of the new information and communication technologies for growth, productivity and employment

PurposeThe purpose of this paper is to discuss the high rates of economic growth of the US economy and the remarkable acceleration of productivity growth since the mid‐1990s which is widely attributed to the modern information and communication technologies (ICTs).Design/methodology/approachAfter identifying three key factors for Solow's productivity puzzle and examining ICTs as a general purpose technology, three main channels of ICTs' impact in the economy are discussed: the first transmission channel is direct and consists of the effects generated by rapid technical progress within the ICT‐capital goods producing sector. The second one is due to the increasing accumulation and application of ICT goods and services in the user sectors. ICTs' positive spillover effects comprise the third transmission channel, i.e. they lead to “disembodied” increases in efficiency in the sense of “learning by doing” in the end‐user sector.FindingsThe diffusion of ICTs requires investment in all industries, i.e. the improvement of competitiveness on the macro level is strongly linked to investment activities and skill qualifications on the micro level.Research limitations/implicationsThe paper concludes with some comparisons between the US and the German economy where the acute need for infrastructure investment in East Germany in the 1990s limited the possibilities for investment in ICTs exactly at a time of high‐technological dynamism at the start of an upswing of a new Kondratieff cycle. Although some comparisons with the EU are made the impact of ICTs in other countries except the USA and Germany is not discussed more intensively.Practical implicationsA very useful source of information for graduate students and policy makers alike on the theoretical and empirical impact of new technologies on economic development.Originality/valueThis paper fulfils an information need for comparing growth in international perspective.

Liberalization, Market Power, and Productivity Growth in Indian Industry

Using firm‐level panel data we investigate whether reform of the trade and industrial policy regimes in India introduced in 1991 resulted in a reduction in market power and/or an acceleration in productivity growth, consequences that have been predicted in theory. Econometric testing of the theory for every industry group at the two‐digit level in India yielded limited evidence of acceleration in productivity growth and no evidence of a reduction in market power. This is interpreted as suggesting that in the case of Indian industry trade liberalization has not exhibited the potential often attributed to it.

Productivity Measurement and Monetary Policymaking during the 1990s

The acceleration of productivity growth during the latter half of the 1990s was both the defining economic event of the decade and a major topic of debate among Federal Reserve policymakers. A key aspect of the debate was the conflict between incoming aggregate data, which initially suggested little productivity gain, and anecdotal firm-level evidence which hinted at an acceleration. Some FOMC members feared an overheating economy and higher inflation; others, including the Chairman, argued that revolutionary increases in productivity were occurring and the Committee should not prematurely forgo significant future gains in real income by tightening policy. We review the difficulty of measuring productivity during periods of rapid quality change, the large magnitude of subsequent data revisions during the 1990s, and, from FOMC transcripts, the contemporary monetary policy debate within the FOMC as the decade's data evolved.

Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income

Where Did the Productivity Growth Go?Inflation Dynamics and the Distribution of Income Ian Dew-Becker and Robert J. Gordon It's no secret that the gap between the rich and the poor has been growing, but the extent to which the richest are leaving everybody else behind is not widely known. . . . It's like chasing a speedboat with a rowboat. —Bob Herbert, The New York Times1 There is no question that a huge gap has opened up between productivity and living standards. . . . Not since World War II have productivity and income diverged so sharply. —Louis Uchitelle, The New York Times2 The first half of this decade has witnessed a sharp contrast between strong output and productivity growth, on the one hand, and slow employment and median income growth, on the other. The strong growth in output combined with weak growth in hours worked has resulted in an explosion [End Page 67] in labor productivity growth, implying an underlying trend that is rising faster than in any previous subperiod of the postwar era. Yet who received the benefits? Median household income actually fell by 3.8 percent from 1999 to 2004 and grew from 1995 to 2004 at a rate of only 0.9 percent a year, a much slower rate than that of nonfarm private business (NFPB) output per hour over the same period, at 2.9 percent.3 Similarly, the median real wage for all workers grew over 1995-2003 at an average rate of 1.4 percent a year, less than half the rate of productivity growth.4 The failure of the productivity growth revival to boost the real incomes and wages of the median family and the median worker calls into question the standard economic paradigm that productivity growth translates automatically into rising living standards, as in this quote from Paul Krugman: Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker . . . the essential arithmetic says that long-term growth in living standards . . . depends almost entirely on productivity growth.5 This paper should be read in the spirit of a detective novel, whose title might be "The Case of the Missing Productivity Payoff." Our detective story is divided into two parts, macro and micro. The macro part begins with the standard identity stating that productivity growth equals real wage growth if labor's income share is constant. We examine the aggregate data that compare productivity growth with growth in alternative real wage measures, and we then ask how the post-1995 acceleration in productivity growth enters into the econometrics of price and wage dynamics. In past incarnations of dynamic Phillips curves, productivity growth has been a sideshow to the main story, if mentioned at all. The paper provides a new look at price and wage dynamics in order to assess the causes of low inflation in the decade after 1995. In light of the strong demand of the late [End Page 68] 1990s, why was inflation so low? What role did the revival of trend productivity growth play, in contrast to other beneficial supply shocks? Did the productivity growth slowdown of 1965-79 play a parallel role in creating high inflation in the 1970s? Can dynamic wage and price equations reproduce the behavior of the changes in labor's income share observed in the data? The investigation begins with the Gordon inflation model that explains price changes by inertia, demand shocks, and supply shocks but does not include wages. A unique contribution of this paper is then to bring wages back into the study of inflation dynamics and to develop a model that includes both price and wage equations and allows each to feed back to the other. This model can capture the effect of changes in trend productivity growth on inflation, nominal wage changes, and changes in labor's income share. In dynamic simulations of the wage-price model, we find that changes in the productivity growth trend had major effects in boosting inflation during 1965-79 and in slowing it down between 1995 and 2005...

Some Implications of Using Prices to Measure Productivity in a Two-Sector Growth Model

At wo-sector growth model is used to study U.S. productivity growth since the 1960s. Sector-specific measures of productivity are constructed by imposing theoretical restrictions from this model on data on factor prices and the relative price of capital. Under the identifying restriction that capital-specifi cp roductivity growth be orthogonal to economy-wide productivity growth, shifts in TFP growth can be explained in terms of an economy -wide productivity growth slowdown in the mid-1970s and an acceleration in productivity growth in the capital goods sector in the mid-1990s. Also, interpreting changes in the relative price of capital as capital-specifi ct echnological change implies at heoretical restriction on the productivity processes that is rejected by our data.

The Assessment: The New Economy

The remarkable economic success of the United States in the 1990s led many observers to talk about a 'New Economy'. This paper provides an overview of the main issues, including faster productivity growth, the stability of inflation despite very low unemployment, the reduction in output volatility, the role of monetary policy, and the boom in the stock market. The paper also considers whether or not the acceleration in productivity growth can be sustained, and the possible implications for the rest of the world. Copyright 2002, Oxford University Press.

The NAIRU in Theory and Practice

This paper discusses the NAIRU -- the non-accelerating inflation rate of unemployment. It first considers the role of the NAIRU concept in business cycle theory, arguing that this concept is implicit in any model in which monetary policy influences both inflation and unemployment. The exact value of the NAIRU is hard to measure, however, in part because it changes over time. The paper then discusses why the NAIRU changes and, in particular, why it fell in the United States during the 1990s. The most promising hypothesis is that the decline in the NAIRU is attributable to the acceleration in productivity growth.

The NAIRU in Theory and Practice

This paper discusses the NAIRU—the non-accelerating inflation rate of unemployment. It first considers the role of the NAIRU concept in business cycle theory, arguing that this concept is implicit in any model in which monetary policy influences both inflation and unemployment. The exact value of the NAIRU is hard to measure, however, in part because it changes over time. The paper then discusses why the NAIRU changes and, in particular, why it fell in the United States during the 1990s. The most promising hypothesis is that the decline in the NAIRU is attributable to the acceleration in productivity growth.

Productivity Growth During the English Industrial Revolution: A Dual Approach

This paper presents new estimates of total factor productivity growth in Britain for the period 1770-1860. We use a dual technique recently popularized by Hsieh (1999), and argue that the estimates we derive from factor prices are of similar quality to quantity-based calculations. Our results provide further evidence, derived from this independent set of sources, that productivity growth during the British Industrial Revolution was relatively slow. During the years 1770-1800, TFP growth was close to zero, according to our estimates. The period 1800-1830 experienced an acceleration of productivity growth. The Crafts-Harley view of the Industrial Revolution is thus reinforced. We also consider alternative explanations of slow productivity growth, and reject the interpretation that focuses on the introduction of steam as a general purpose technology.

Ten Years of Mrs. T.

We argue that the 1970s were characterized by attempts to maintain a cooperative, low-unemployment equilibrium in the face of considerable union power, through the use of incomes policies and neo-corporatist machinery. The 1980s saw a shift away from this, toward direct measures to limit union power. This, together with the adoption of tight macroeconomic policies, explains the initial rise in unemployment. Empirical evidence suggests that its persistence throughout the decade is due to the effect of prolonged unemployment on the search behaviour of the outsiders, rather than the insider mechanism emphasized by Blanchard and Summers, and others. The reduction in union power also helps to explain the acceleration in productivity growth. The craft nature of much of the British union movement has led to a multiplication of bargaining units within firms. Bargaining in isolation a union can perceive overmanning and other restrictive practices as being in its interests, resulting in low wages and productivity. A fall in union power results in a reduction in these inefficiencies and leads not only to a rise in productivity but also in wages. Cross-section empirical evidence supports the thesis that the productivity acceleration has been greatest where multi-unionism is present. We also show how this explains the widening in pre-tax as well as post-tax earnings.

Ten Years of Mrs. T.

We argue that the 1970s were characterized by attempts to maintain a cooperative, low unemployment equilibrium in the face of considerable union power, through use of incomes policies and neo-corporatist machinery. The 1980s saw a shift away from this, towards direct measures to limit union power. This, together with the adoption of tight macroeconomic policies, explains the initial rise in unemployment. The reduction in union power also helps to explain the acceleration in productivity growth. The craft nature of much of the British union movement has led to a multiplication of bargaining units wihin firms. Bargaining in isolation a union can perceive overmanning and other restrictive practices as being in its intrests, resulting in low wages and productivity. A fall in union power results in a reduction in these inefficiencies and leads not only to a rise in productivity but also in wages.