Study Ties Computer Investment To Productivity Gains

Jan. 13, 2005
Was the $67.9 billion manufacturers spent on computers from 1990-96 money well spent? Not if some traditional economic measures are to be believed. Total factor productivity, a widely accepted measure that adjusts for total inputs (labor, physical ...

Was the $67.9 billion manufacturers spent on computers from 1990-96 money well spent? Not if some traditional economic measures are to be believed. Total factor productivity, a widely accepted measure that adjusts for total inputs (labor, physical capital, materials, land, energy), grew 2.2% annually from 1948-73. But from 1979-94, a period of intense computer investment, this measure slogged at an anemic 0.3% per year. A recent study by The Conference Board, a research group based in New York City, questions the universality of this so-called computer productivity paradox. Economists there compared the productivity figures of computer-intensive manufacturing sectors with those that had invested less heavily in computers. The study pinpointed five manufacturing sectors where capital input in the form of computers exceeded 4% of total capital input in 1991: printing and publishing (6%); stone, clay, and glass (10.8%); non-electrical machinery (13.4%); electrical machinery (4.73%); and instruments (4.23%). These computer investments appear to have paid off. During the 1990s, the computer-intensive sectors chalked up labor productivity growth of 5.7% annually, double the 2.6% growth of other manufacturing sectors. Although the less computer-intensive sectors grew more slowly, they did take advantage of drastically falling computer prices. Computer capital across all industry sectors climbed 20.4% annually from 1975 to 1996. Output, and therefore productivity, for the less computer intensive sectors did not keep pace. Still, the companies in these sectors appear to have substituted relatively cheap computer technology for more expensive manual labor, the study notes. One caveat: The study measured only actual computers and peripherals -- PCs, mainframes, workstations, laser printers, and monitors. But microprocessors are everywhere, embedded in machine controls, personal organizers, ATMs, rice cookers, and gasoline pumps. Worldwide, actual computers number a mere 200 million when compared with the 6 billion non-computer chips quietly churning away, which makes the real contribution of information technology -- beyond the project, plant, or company level -- all but impossible to measure.

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