2014 Series • No. 2014–1
Current Policy Perspectives
Productivity in the Slow Lane? The Role of Information and Communications Technology 
As the current recovery matures in the United States, evidence is mounting that total factor productivity (TFP), the typical measure of technological change, has moved back into the slow lane. This study uses industry data to explore the extent to which the acceleration in TFP in the late 1990s and early 2000s and the subsequent deceleration are attributable to unmeasured investment by firms to take full advantage of the new capabilities made possible by information and communications technology (ICT).
Key Findings
- We find that this pattern of a TFP speed-up followed by a slowdown has been widespread across industries.
- Prior to the mid-2000s, investment in ICT capital grew much faster than investment in non-ICT capital for most industries, and there is little correlation across industries in the growth of these two types of investment. Since then, the relative growth of ICT investment has declined more than its relative price growth has increased. In addition, growth rates of the two types of investment have also become highly correlated across industries.
- For those industries that use ICT more intensively, the acceleration in TFP in the early 2000s seems to have depended positively on the intensity of ICT investment in the second half of the 1990s, which is likely highly correlated with the unmeasured spending on restructuring. This can be construed as evidence that firms invested simultaneously in tangible ICT capital and intangible organizational capital that diverted resources but enhanced the future efficacy of ICT capital.
Exhibits
Implications
Taken together, these patterns suggest that firms had mostly completed the desired reorganization associated with ICT by the mid-2000s and thus their growth paths for ICT capital have converged to the steady-state growth path for ICT capital since the mid-2000s. It further implies that TFP has likely reverted back to its long-run, slower, trend rate of growth.
Abstract
As the current recovery matures in the United States, evidence is mounting that total factor productivity (TFP), the typical measure of technical change, has moved back into the slow lane. This study uses industry data to explore the extent to which the acceleration in TFP in the late 1990s and early 2000s and the subsequent deceleration are attributable to unmeasured investment by firms to take full advantage of the new capabilities made possible by information and communications technology (ICT). We find that this pattern of a TFP speed-up followed by a slowdown has been widespread across industries. Moreover, prior to the mid-2000s, investment in ICT capital grew much faster than investment in non-ICT capital for most industries, and there is little correlation across industries in the growth of these two types of investment. Since then, the relative growth of ICT investment has declined more than its relative price growth has increased. In addition, growth rates of the two types of investment have also become highly correlated across industries. Furthermore, for those industries that use ICT more intensively, the acceleration in TFP in the early 2000s seems to have depended positively on the intensity of ICT investment in the second half of the 1990s. This can be construed as evidence that firms invested simultaneously in tangible ICT capital and intangible organizational capital that diverted resources but enhanced the future efficacy of ICT capital. Taken together, these patterns suggest that firms' growth paths for ICT capital have converged to the steady-state growth path for ICT capital since the mid-2000s. It further implies that TFP has likely reverted back to its long-run, slower, trend rate of growth.