The next wave of productivity growth will be driven by digitization, writes The Wall Street Journal (Feb. 23, 2018). The diffusion of new technologies into everyday use holds promise for bringing back the kinds of annual 2% productivity growth seen in the past, but digitization is still at an early stage in many industries. Looking at the past half-century, the time from commercial availability of new technologies to 90% adoption ranges from about 8 to 28 years.
It’s a matter of some urgency. U.S. worker productivity grew below its long-run average for the 7th straight year in 2017, advancing a meager 1.2% from 2016. In Chapter 1, we note that labor productivity—real economic output divided by the numbers of hours worked—is key for economies to grow, improve living standards and keep inflation in check.
The waning of the 1990s productivity boom and the aftereffects of the financial crisis dragged down productivity growth by 1.9% on average across western countries since the mid-2000s. The retail sector is one of the laggards on digitization, along with agriculture, construction, hospitality, health care, government and education. Industries at the forefront of digitization include technology, media, and professional and financial services.
The retail industry is in the throes of technological disruption, with bricks-and-mortar retailers facing steep competition from e-commerce sales. Yet only 9 cents out of every dollar spent on retail is spent online, suggesting there is still enormous room for digitization.
Classroom discussion questions:
- Why is productivity an important OM issue?
- What is meant by digitization, and how can it impact productivity?