An Assessment of the Productivity Impact of Information Technologies

Abstract

Abstract The United States has recently suffered through a protracted period of low productivity growth and has experienced essentially no growth in real wages since 1973 (see Love man & Tilly, 1988). Hope for a rebound in productivity growth is often linked to the continued improvement and diffusion of information technologies (IT),1 which have recently undergone massive price declines and increased enormously as a proportion of capital spending.2 Table 4.1 compares the evolution of computer prices with those for other components of producers’ durable equipment: One dollar’s worth of quality-adjusted computing power in 1970 cost $73.60 in 1950, and only 5 cents in 1984. Meanwhile, a 1970 dollar’s worth of non-IT equipment cost only 59 cents in 1950 but rose to $2.54 in 1984. Changes in relative prices of this magnitude have straightforward implications from economic principles: Producers will substitute IT capital for other factors of production to the extent that is optimal given production technologies; output will rise as product prices fall; and total welfare will increase. The decline in the price of IT therefore has positive implications opposite to those precipitated for consumers by the earlier energy crisis, in which an important factor of production became radically more expensive.3

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