Here is my new column for The Upshot, asking whether an undervalued tech sector might explain a significant part of the productivity slowdown. The answer is not really, here are a few excerpts:
Chad Syverson, a professor of economics at the University of Chicago Booth School of Business, has looked more scientifically at the evidence and concluded that the productivity slowdown is all too real. These results are outlined in his recent National Bureau of Economic Research working paper “Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown.”
…the countries with smaller tech sectors still have comparably sized productivity slowdowns, and that is not what we would expect if a lot of unmeasured productivity were hiding in the tech industry.
…The productivity slowdown is too big in scale, relative to the size of the tech sector, to be plausibly compensated for by tech progress. Basically, under a conservative estimate, as outlined by Professor Syverson, the productivity slowdown has led to a cumulative loss of $2.7 trillion in gross domestic product since the end of 2004; that is how much more output would have been produced had the earlier rate of productivity growth been maintained. To make up for this difference, Professor Syverson estimates, consumer surplus (consumer benefits in excess of market price) would have to be five times as high as measured in the industries that produce and service information and communications technology. That seems implausibly large as a measurement gap.
Don’t forget that most of the outputs of the tech sector are paid for, or they induce a higher demand for broadband and smart phones, which do enter into gdp. And this:
Or look at it this way: The tech economy just isn’t big enough to account for the productivity gap. That gap has caused measured G.D.P. to be about 15 percent lower than it would have been otherwise, yet digital technology industries were only about 7.7 percent of G.D.P. in 2004. Even if the free component of the Internet has become more important since 2004, it’s hard to imagine that it is so much better now that it accounts for such a big proportion of G.D.P.
As my column was published, this new piece by Byrne, Fernald, and Reinsdorf (pdf) came out from Brookings. They reach similar conclusions as does Syverson, albeit using some different arguments and paths. I’ll be giving it some independent coverage soon.