The last decade’s IT-driven productivity gains have largely fallen off, according to a new paper that the San Francisco Fed put up Monday (Feb. 9).
Researchers John Fernald and Bing Wang focused on industries that intensively used or created information technology, and they found that the great digital revolution of the late 1990s’ and early 2000s’ “New Economy” era dissipated in the years just before the recession:
The contribution of IT producers was inordinately high in the late 1990s, accounting for over half of overall TFP [total factor productivity] growth in this period—even though they account for only 5% of the economy. Much of that surge reflected gains in hardware production, in part because competition within the semiconductor industry led to the faster introduction of new chips. In the 2000s, the pace of TFP gains in IT production eased. Hence, the direct contribution of IT-producing industries fell.
The note echoes many of the themes from a previous paper Fernald wrote in 2014, which pointed out that by 2013 US productivity growth had returned to the rate it had seen in the couple decades before 1995.
The paper doesn’t discount the idea that yesterday’s (or even today’s) technology gains will sow the seeds for more efficient economic output in the future. Instead, it just throws a bit of cold water on the idea of it as a magic bullet.