The Swedish ICT miracle - myth or reality?

This paper investigates the relative labor productivity level for total manufacturing in Germany, Sweden and the US for the period 1980–2001. The paper also presents estimates of labor productivity levels for 18 different manufacturing industries for the period 1993–2000. The results show that the Swedish manufacturing productivity caught up with German and US productivity in the 1990s, overtaking the German level in 1995 and coming very close to the US level by the end of the 1990s. It has been argued that much of the Swedish surge in labor productivity during the second half of the 1990s was due to the spectacular growth of the Radio, television and communication equipment (RTC) (ISIC 32) industry. However, this paper shows that since 1998 Swedish RTC productivity has been declining relative to the corresponding industry in Germany and the US. Moreover, it is shown that the productivity growth of the ICT-producing industries is very sensitive to the value added price deflators that areused to calculate real value added growth rates. Unlike Sweden, the US uses hedonic price indexes for semiconductors and microprocessors. These electronic components are important intermediate inputs in the RTC industry. Therefore estimates based on the US intermediate input price deflators for semiconductors and microprocessors suggest that the productivity growth of the Swedish RTC industry during the 1990s is partly a statistical artefact. This implies that the productivity growth of total manufacturing also has been overestimated. JEL-codes: O10; O30; O47; O57