American middle class wages haven’t been rising as rapidly as they once were, and a slowdown in productivity growth is probably an important cause, reports The New York Times (March 6, 2016). In mature economies, higher productivity typically is required for sustained increases in living standards, but the productivity numbers in the U.S. have been mediocre. Labor productivity has been growing at an average of only 1.3% annually since 2005, compared with 2.8% annually in the preceding 10 years. As we point out in Chapter 1, without improving productivity growth, living standards will continue to lag.
Not everyone views the situation this way. Marc Andreessen, the Silicon Valley entrepreneur, says information technology is providing significant benefits that just don’t show up in the standard measurements of productivity. (Consider that consumers have access to services like Facebook, Google and Wikipedia free of charge, and those benefits aren’t fully accounted for in the official numbers). This notion — that life is getting better, often in ways we are barely measuring — is common in tech circles.
Until recently, this debate was inconclusive. It consisted mainly of anecdotes, with individuals describing how important advances like the Internet were — or were not — to them personally. But a new U. of Chicago study has looked more scientifically at the evidence and concluded that the productivity slowdown is all too real. Basically, the productivity slowdown has led to a cumulative loss of $2.7 trillion in gross domestic product since 2004; that is how much more output would have been produced had the earlier rate of productivity growth been maintained. Arguably the Internet brought its biggest gains in the 1990s, and in those years measured economic productivity was in fact very high. But America’s productivity crisis is real. While information technology remains the most likely source of future breakthroughs, Silicon Valley has not saved us just yet.
Classroom discussion questions:
- What are the problems in trying to measure productivity?
- Is Andreessen correct?