(See the picture below for answer the question) 1. Exactly how does computer technology increase productivity? How would you show this with a production function? 2. Who experiences the gains in productivity growth spawned by computers? How would you measure such gains?
Extracted text: A P PLI CATIO N 6.5 Finding the Computer Revolution Economists have intensively studied productivity trends dur- ing the past 50 years in an effort to identify factors that may have contributed to improvements. One of the major puz- zles in this research is that productivity growth seems to have slowed down just as computers were coming into more widespread usage in the U.S. economy. Table 1 illustrates this paradox. From 1959 to 1973, average labor productivity increased at an annual rate of nearly 3 percent per year and total factor productivity growth was more than 1 percent per year. During the following two decades, however, both rates of productivity increase slowed dramatically. What is odd about this finding is that these two decades were character- ized by the rapid introduction of computers into practically all areas of the economy. Presumably these actions should have increased product effect caused famous growth theorist Robert Solow to quip that "you can see the computer age everywhere but in the productivity statistics." telecommunications, and software). Before 1995, these industries contributed, at most, one-quarter of one per- centage point to annual productivity growth. But that fig- ure more than doubled after 1995. Two related factors seem to have accounted for the increase: (1) a rapid decline in the price of computer-related equipment, and (2) major investments in such equipment by the informa- tion technology industries. It was not until the late 1990s that such trends were large enough to appear in the overall statistics. Will the Trend Continue? Table 1 also suggests that the contribution of computer technology to productivity growth may have declined in the new century. There is considerable disagreement among economists about whether this decline is just a "blip" in a long-term uptrend or a significant sign that the productivity impact of computers in the workplace has lar- gely ended. Of course, it would not be surprising if computer inputs eventually experienced diminishing returns in production. Whether major new technical improvements will reverse such declines is uncertain at this time. The inability to detect such Finally, Computers Appear After 1995, productivity performance in the U.S. economy improved dramatically, and this is where the effect of com- puters began to appear. As Table 1 shows, during 1995– 2000, average labor productivity grew at 2.7 percent per year, and total factor productivity growth returned to its earlier levels. One major reason for this improvement is suggested by the final line in the table, which indicates the importance of total factor productivity gains in infor- mation technology producing industries (computers, Το THNKAβουT 1. Exactly how does computer technology increase pro- ductivity? How would you show this with a production function? 2. Who experiences the gains in productivity growth spawned by computers? How would you measure such gains? 'In The New York Times Book Review, July 12, 1987, p. 36. TABLE 1 U.S. Productivity Growth 1959–2006 (average annual rates) 1959–1973 1973-1995 1995–2000 2000-2006 Average labor productivity Total factor productivity Total factor productivity from information technology 2.82 1.49 2.70 2.50 1.14 0.39 1.00 0.92 0.09 0.25 0.58 0.38 Source: Dale W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh, "A Retrospective Look at the U.S. Productivity Growth Resurgence." Journal of Economic Perspectives (Winter 2008): 3–24.