Wednesday, June 20, 2007

America's Productivity Edge (?)

In his NY Times Economic Scene column, Austan Goolsbee discusses some research on the fascinating and important issue of productivity - that is, how much output is produced from a given quantity of inputs. The study of productivity recently has moved on from analyzing the "productivity slowdown" that began in 1973 to the "productivity miracle" of the late 1990's. The US seems to have gotten more out of the miracle than Europe. Perhaps because we're better at computers. Goolsbee writes:
The popular explanation, of course, pointed to information technology and, specifically, to the fact that the price of semiconductors began falling at an even more rapid rate than they had been, starting in the 1990s.

Rather than a traditional drop of 20 percent a year, computer prices began falling more like 30 percent a year. This may sound subtle, but it couldn’t be more dramatic. After 10 years of such declines, the 20 percent rate would have left computer prices almost four times higher than the 30 percent rate did. Low computer prices drove mass adoption of technology and, hence, the productivity miracle was born. Or so the story goes.

The only problem is, the explanation doesn’t work, according to John Van Reenen at the London School of Economics... He said that the prices of information technology fell in Europe, too. And Europeans bought information technology. But they had no productivity miracle.

To explain the experience in the United States, one would have to believe that Americans have some better way of translating the new technology into productivity than other countries. And that is precisely what Professor Van Reenen’s research suggests...

In his conclusion, Goolsbee takes a gratuitous swipe at France:

We hate experiencing major adjustments and industry transformations that force people to look for new jobs. That experience has made many skeptical about the future of the United States in the world economy. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting.

Perhaps the lesson from the research can be boiled down to something most Americans clearly understand: The world economy may be tough on your industry but look on the bright side: you could be French.

Dissing the French is soooo 2003. They may be "cheese eating surrender monkeys," but according to the OECD productivity database, French GDP per hour worked - that is, productivity - is slightly (1%) higher than America's. France does have lower per capita GDP, but that's because French workers work significantly less (1546 hours per year vs. 1713 in the US). Oh, and they don't have to worry about losing their health insurance.


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