Despite U.S. business' massive investment in information technology, economists have had a hard time proving that it has really paid off. For one thing, productivity in the service sector, which accounts for some 80% of information technology purchases, has lagged badly. And some researchers argue that the effective use of computers involves a long learning curve whose payoff may still be years away.
Economist Frank Lichtenberg of the Columbia Business School thinks such conclusions are based on flawed measures of service-sector productivity. In a new study, he looks at how investment in information-systems (IS) technology and personnel affected the production of several hundred manufacturing and service companies in recent years.
Lichtenberg's findings, based on the relationship of individual companies' use of IS equipment and labor to their output, suggest that such technology investments have been anything but ill-conceived. While they account for only about 10% of labor costs and 10% to 15% of total capital expenditures, computer equipment and employment jointly contribute some 21% of the output of the companies studied. Although IS personnel represent only 3% or so of the work forces of the companies studied and are paid two to three times as much as other workers, the average IS employee is six times more productive than are non-IS co-workers.
To skeptics who may question such startling results, Lichtenberg points to the experience of one Baby Bell that decided to automate its handling of customer-service inquiries. After investing in new minicomputers and hiring nine programmers and systems personnel, the telecommunications company found
it was able to lay off some 75 service representatives.