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Patents Tell An Upbeat Story

Economic Trends


Technology is driving productivity

Can the U.S. continue to post faster-than-average economic growth and healthy increases in business profits without setting off inflation alarms? One economist who thinks it can is Maury Harris of PaineWebber Inc., who points to the continuing surge in U.S. patent applications as evidence that the economy is undergoing a productivity transformation that promises to accommodate both wage and profit gains while containing price pressures.

Many economic observers have argued that the widespread use of computers, along with other technological advances, has revitalized the nation's long-depressed productivity performance. Yet the reported average annual gain in productivity through most of the current expansion has been a paltry 1%. It is only in the past year or so that the pace has quickened significantly, averaging 2.7% through the first three quarters of 1997.

This pickup, which is highly unusual in the late stages of an expansion, suggests that changing technology may finally be starting to bolster the productivity numbers. Noting that economists generally credit technological progress with producing more than a third of productivity gains earlier in the century, Harris argues that the rising pace of patent applications indicates that it is exerting a similar influence today. So far in the 1990s, he notes, patent applications are running more than 50% above their pace in the 1980s (chart).

Reinforcing the view that U.S. business is increasingly focused on reaping the fruits of scientific advancements are a host of related developments--from the recent capital-spending boom to the strength of business research and development outlays--which are up around 10% a year since 1994--to the doubling of venture-capital commitments since 1995. In addition, the ongoing cutbacks in defense spending appear to be reallocating scientific talent to commercial projects.

If Harris is right in his belief that patent activity is a leading indicator of productivity gains, than the recent pickup in productivity growth should last for quite a while. Since 1995, the pace of applications received by the patent office has zoomed to nearly 204,000 a year. That's up from 173,000 earlier in the decade and less than 120,000 a year in the 1980s.BY GENE KORETZReturn to top

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Welfare isn't a factor, says a study

When Congress eliminated federally funded benefits for most immigrants as part of welfare reform last year, the action sparked fears that some states--those that continued to offer relatively high benefits to immigrants--would become magnets for impoverished foreigners who might have settled elsewhere. Although the law has been modified somewhat since then to soften the impact on legal immigrants already residing in the U.S., many policymakers remain concerned that new arrivals from overseas will now flock to those states that choose to provide relatively generous safety nets.

Such fears are exaggerated, contends Madeline Zavodny of the Federal Reserve Bank of Atlanta. In an econometric study of immigration patterns recently published in the Federal Reserve Bank of Dallas' Economic Review, the former Dallas Fed economist looked at the destinations of people from 18 countries, who accounted for two-thirds of all immigrants entering the U.S. in 1982 and 1992. She found little evidence that new immigrants choose locations based on welfare benefits. Neither changes in benefits within a state over time nor interstate welfare differentials appear to influence immigration patterns.

Rather, reports Zavodny, new immigrants overwhelmingly choose to settle in areas with large immigrant populations. These include states with relatively high welfare benefits, such as New York, New Jersey, California, and Illinois, and states with lower-than-average aid, such as Florida and Texas.

In short, the advantage of living close to people who share their own language and culture seems more important to those emigrating to the U.S. than the availability of generous government support.BY GENE KORETZReturn to top

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