The IT Revolution: Is It Evident in the Productivity Numbers?

T here is little doubt that we are witnessing a technological revolution. The question is, does this technological revolution have revolutionary economic consequences? In particular, is economic productivity growing at a much faster rate today, and if so, will it continue to do so in the future? In this article, we review recent literature on the measurement of productivity growth in the United States. We find considerable evidence that the internet technology (IT) revolution has had an impact on productivity. In order to understand the effects of IT on today’s economy, one should look at the past century. When we consider postwar U.S. productivity movements, two events stand out: the impressive productivity growth performance from the end of World War II up to the early seventies, and the ensuing productivity slowdown, which lasted until the mid-nineties. Labor productivity growth, which averaged about 2 percent per year from the fifties on, suddenly decreased to nearly 0 percent, and then seemed to settle at a rate around 1 percent. Moreover, this postwar productivity pattern is observed not only for the U.S. but throughout the western world. This productivity slowdown remains quite poorly understood (for an overview and detailed data, see Hornstein and Krusell [1996]). One interpretation of the productivity data is that the fast postwar growth was a transitional period that made up for the losses during the Great Depression, and the post1974 period of low productivity growth rates is really the normal state of the