Productivity Growth in the 1990s: Technology, Utilization, or Adjustment?

John G. Fernald, Susanto Basu, Matthew D. Shapiro
2001 Social Science Research Network  
Productivity Growth in the 1990s: Technology, Utilization, or Adjustment? Measured productivity growth increased substantially during the second half of the 1990s. This paper examines whether this increase owes to an increase in the rate of technological change or whether it can be explained by non-technological factors relating to factor utilization, factor accumulation, or returns to scale. It finds that the recent increase in productivity growth does appear to arise from an increase in
more » ... n increase in technological change. Cyclical utilization raised measured productivity growth relative to technology growth in the first part of the expansion, but lowered it subsequently. Factor adjustment leads to a steady-state understatement of technology growth by measured productivity growth. The understatement was greater in the second half of the expansion than the first. Changes in the distribution of inputs across industries with different returns to scale lead to a modest understatement in the growth in technology. Although the increase technological change is most pronounced in durable manufacturing, technological change also increased outside of manufacturing. and NBER tel. 312 322-2116 and NBER tel. 734 764-5359 tel. 734 764-5419 4 to keep track of it in assessing the performance of the 1990s. We find that utilization contributed about 1/2 percentage point per year to growth in the measured Solow residual in the 1992-1994 period as the economy recovered from recession. Since then, utilization has bounced around from year to year, but on balance, has contributed negatively to growth in the Solow residual, and thus does not explain the increase in growth in the second half of the 1990s. The 1990s are distinct, however, in the changes in factor accumulation, particularly that of capital. 7 Figure 1 shows the ratio of nominal nonresidential fixed investment to GDP over the post-war period. The 1990s experienced a boom in business investment of unprecedented size and duration. The increase in investment in the 1970s was as sharp, but not as prolonged. In the two other long expansions since the World War II -the 1960s and the 1980s -investment peaked well before the end of the expansions. Information technology equipment -computers plus telecommunications equipmenthas been a major part of the story. Its share in total business fixed equipment investment increased dramatically in the 1990s. Figure 2 shows how during the 1990s, the share of information technology investment in GDP rose from 3 percent to almost 6 percent. 8 Much of this information processing equipment has been purchased by the non-manufacturing sector. 6 See Economic Report of the President (1994, pp. 56-7, 98-101). The growth in output and labor were both unusually slow. 7 In contrast with capital, the growth in labor in the 1990s, though substantial, is not atypical. There was a substantial increase in labor supply from every margin -population, participation, and the decline in the unemployment rate. Yet, notwithstanding the drop in the unemployment rate, the growth in labor input during the 1990s is quite similar to that in the 1980s boom. See Blank and Shapiro (2001) for a discussion of the role of labor supply in the recent expansion. 8 The change in real terms is even more dramatic owing to the very rapid price decline for information technology. Direct comparison of real quantities is, however, problematic owing to the chain-weighting of the national accounts. See Whelan (2000b). for , ,
doi:10.2139/ssrn.277248 fatcat:5mz3ugqctfc3nmkfuf7z5kogoy