Productivity cooling as gains from tech boom fade

Fiscal Policy

Erik Johnson, a senior U.S. economist for IHS Global in Lexington, Massachusetts, agrees. “Maybe we’re plateauing a bit in terms of the kind of gains we could get” out of digital technology advances, he said. In addition, lackluster demand and fiscal policy uncertainty mean “large capital projects that massively help supply chains and efficiency within companies have gone to the backburner.”

As a result, productivity is languishing, and Johnson projects it will increase 0.5% this year. He forecasts it will “slowly drift up” to an average 1.6% increase in the next 10 years.

That is still well short of recent history. From 1996 through 2004, worker output per hour rose 3.1% a year on average, according to figures from the Labor Department.

The plunge in prices of computing equipment during that time “gave companies the incentive to invest,” said Stephen Oliner, a resident scholar at the American Enterprise Institute in Washington and an economist at the Federal Reserve Board from 1984 to 2011.

In addition, semiconductor manufacturing was in a phase of rapid innovation, and the marriage of computers and communication technology lifted efficiency, he said.

Computer Prices

Since 2004, productivity growth waned because computer prices declined at a less rapid pace and the most-productive applications of the Internet revolution were already in practice, said Oliner. More recently, funding for risky ventures that drive innovation has been scarce and companies that do have the money to spend are less willing to take chances, he said.

At the same time, Oliner says innovations in chip production are generating advances, and areas such as cloud computing may eventually reignite productivity gains.

“I don’t think it’s over,” said Oliner, who advised former Fed Chairman Alan Greenspan on productivity. “Semiconductor technology, the key driver of improvements in IT equipment, is still progressing at a rapid rate. We could have a second wave of IT-based productivity enhancement.”

<< Page 2 of 3 >>

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome