The past decade has been terrible in terms of job growth and median wage growth, and sadly that was true even before it culminated in the worst recession since the 1930s.

But not all the news is bad. Although it’s not much discussed, this has actually been the best decade since the 1960s for productivity growth. Last year, labor productivity grew by over 4% and it has averaged over 2.5% in the preceding 10 years.

U.S. Productivity Growth by Decade

Why does this matter? Simply this: productivity, output per unit input, is by far the most important determinant of our living standards. As Bob Solow showed in his Nobel Prize winning work, the main thing that makes an economy richer is not working harder or even using more capital or other resources. Instead, the main driver is innovations in products, services and business processes that let us create more value without using more inputs. Productivity comes from new technologies and new techniques of production. The most important of these is what economists call general-purpose technologies like the steam engine or electricity. They contribute to productivity directly, but more importantly, they also spur countless complementary innovations that can keep driving productivity growth for decades.

Our era is fortunate to work with one of the most important and powerful general-purpose technologies in history, information technology, in all its forms. Some of my research suggests that IT has been driving the lion’s share of productivity growth in recent years. What’s more, there is no sign that the digital revolution is slowing. On the contrary, I think we are only in the early stages of a transformation that will be no less important than the ones engendered by the steam engine and electricity.

Unfortunately, not everyone is benefitting from strong productivity growth. In fact, many have been directly hurt as their jobs are automated. This is one of the main themes of my new ebook with Andrew McAfee, Race Against the Machine. Grappling with this paradox, high productivity but stagnating employment, is one of the great challenges for our generation.

How do you think we should address it?

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6 Responses to Not All the Economic News is Bad

  1. We have to move education away from the realms that machines can and will be able to master. Digging through troves of words and other data to answer questions, as Watson has shown, is something machines will be doing. So we have to move education more toward uniquely (for now) human skills: advanced reasoning, learning through dynamic dialog, creating theories and art, etc. In my research I’ve found that computers are good at nouns, but struggle mightily with verbs. Verbs have to do with changes that are hard for them to process and anticipate. The problem, of course, is that the push for standards in education relies on tests that can be evaluated by computers. And that pushes curriculum toward the skills and knowledge that computers are mastering. My solution would be to push hundreds of thousands of new teachers into education, and have them teach and evaluate skills that are beyond machines.

  2. @nachrichtenlos says:

    Erik:
    am reading your book right now – enjoying it very much.
    I think we should perhaps change our attitude towards jobs as such. Working dominates too much of our lives, leaving no time for the really important stuff, like family, friends and ourselves.If we stop thinking that companies are not responsible for creating new jobs, but rather for liberating us from them – we may get a completely new job paradigm and a new set of values. Technological progress can take us there.It is very important, though, to manage this process consciously, to not be overtaken by technology and the impacts that come along with this development.
    Best, Barbara

  3. [...] Not All the Economic News is Bad – Digitopoly [...]

  4. Paolo Siciliani says:

    Could the observe increase in labour productivity be at least partly explained by stagnant salaries (as opposed to record high corporate profits)? If that was the case, I am not sure this is entirely good news. (Hmm, wait, I guess it depends on the audience, doesn’t it?)

  5. As all of your writing, Erik, this is a great piece. Can’t wait to read the book. From my point of view, the way we should try to increase employment while productivity is rising through digital technology, is to massively spur customer service. Our own story is a case in point: Our SaaS Data automation system RSDataWeb for Accounting firms is drastically reducing manual work for accountants and bookkeepers. Our clients train their people to learn servicing clients in lieu of number-crunching and manual keying in of data, which is now fully automated.
    Thus, we believe that the biggest task for companies applying Cloud based applications is to train their people in servicing their clients (better).

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