Assistant Professor Ingvil Gaarder, Co-Author: New Technology Has Boosted Productivity More than Previously Believed

It’s almost impossible to imagine how most of today’s jobs could be done without the internet and a host of other advances in information technology. Yet despite rapid growth in IT investment and adoption over the last several decades, productivity has slowed down, according to accepted measures.

But what if we’re simply measuring productivity incorrectly? That’s the question posed by new research from the University of Chicago Harris School of Public Policy, which suggests that productivity growth during the era of rapid IT adoption may be twice as high as previously believed.

Co-authored by Assistant Professor Ingvil Gaarder, the research is the first to demonstrate that slowdowns in productivity growth may be due to mismeasurement rather than a failure of IT to deliver on its promise.

“Productivity gains from technology are not distributed evenly. They vary by country, industry, occupations, employee skill levels, and a host of other factors,” said Gaarder. “But conventional measures of productivity growth fail to fully account for this, leading to mistaken conclusions about the benefits of adopting new technology.”

The authors correct for this bias by developing a new framework for productivity gains that better captures factor-biased components new technologies. .

The key findings from the research paint a much more promising picture of how adoption of new technology can impact productivity.

The National Bureau of Economic Research (NBER) and the U.S. Census Bureau's Center for Economic Research (CES) produce the most commonly cited productivity database for the U.S. economy, spanning all manufacturing sectors from 1958 to 2011. After applying their new model, the authors found that the NBER-CES estimates underreport true productivity growth by ten to twenty percent. The difference is larger over longer time periods.

In the period since 2000, an era often cited as the start of a new slowdown despite significant IT innovation, the authors’ corrected measures show that productivity growth is almost twice as high as the NBER-CES estimates when compared to the earlier period.

The authors also analyzed the impact of a specific technology rollout to isolate its effects on productivity. Between 2001 and 2007, Norway launched a public program to aggressively expand broadband internet availability. Conventional measures revealed that the program had no effect on productivity, but the authors’ new model found that the expansion of broadband internet increased productivity among Norwegian companies by 3.5 percent.

“We hope our new framework can help inform more empirically-driven policy decisions about the impact of new technologies on productivity,” said Gaarder. “For too long, we’ve mistakenly concluded that technology produces only modest productivity gains, when the actual gains are quite considerable.”

These questions require additional study, but hold important implications for economic, technology and other policymakers across sectors, the authors say.