Is The Computer Boost That Big?

Why has U.S. productivity been resurgent in the 1990s? Better management? Slimmed-down bureaucracies? Fewer workers? To a growing number of economists, the most important reason is the spread of computers and other high-tech equipment in the workplace.

But Daniel E. Sichel, an economist at the Brookings Institution, and Stephen D. Oliner, an economist at the Federal Reserve, think the impact of computers on recent productivity growth has been vastly overstated. In a forthcoming Brookings Papers on Economic Activity, Sichel and Oliner calculate that from 1987 to 1993, computers and peripheral equipment contributed at most only 0.2 percentage points a year to growth in business output, after adjusting for inflation. That's not much considering real business output expanded by 1.9% a year between 1987 and 1993. Adding in software and labor does boost the contribution of computer services on productivity to a more significant 0.4% a year--a figure that could rise to 0.5% annually from 1993 to 2003.

The reason computers contribute so little to higher productivity and output is surprisingly simple: Despite the digital explosion of the past 15 years, the installed base of computers still constitutes a tiny 2% share of the nation's total capital stock, according to Sichel and Oliner.

The economists also note that the contribution of computers to net output may have been far less than is typically calculated. When companies take heavy depreciation charges as old computers are scrapped every few years in favor of newer, faster models, it sharply reduces the economic growth attributable to high-tech gear. "I'm not suggesting computers haven't brought about efficiency gains for individual corporations," says Sichel. "It's just not the story for the economy as a whole."

Before it's here, it's on the Bloomberg Terminal.