Put another way by Robert Solow, a Nobel laureate in economics, In other words, just because our computers are getting faster, that doesn’t mean that that we will have an equivalent leap in productivity. In fact, the opposite may be true! New York Times writer Matt Richel wrote in an article for the paper back in 2008 that stated, “Statistical and anecdotal evidence mounts that the same technology tools that have led to improvements in productivity can be counterproductive if overused.” There’s a strange paradox when it comes to productivity. Rather than an exponential curve, our productivity will eventually reach a plateau, even with advances in technology. So what does that mean for our personal levels of productivity? And what does this mean for our economy as a whole? Here’s what you should know about the productivity paradox, its causes, and what possible solutions we may have to combat it.
What is the productivity paradox?
There is a discrepancy between the investment in IT growth and the national level of productivity and productive output. The term “productivity paradox” became popularized after being used in the title of a 1993 paper by MIT’s Erik Brynjolfsson, a Professor of Management at the MIT Sloan School of Management, and the Director of the MIT Center for Digital Business. In his paper, Brynjolfsson argued that while there doesn’t seem to be a direct, measurable correlation between improvements in IT and improvements in output, this might be more of a reflection on how productive output is measured and tracked.[1] He wrote in his conclusion:
How do we measure productivity anyway?
And this brings up a good point. How exactly is productivity measured? Just as managers look beyond “productivity” for some of the benefits of IT, so must researchers be prepared to look beyond conventional productivity measurement techniques.” In the case of the US Bureau of Labor Statistics, productivity gain is measured as the percentage change in gross domestic product per hour of labor. But other publications such as US Today, argue that this is not the best way to track productivity, and instead use something called Total Factor Productivity (TFP). According to US Today, TFP “examines revenue per employee after subtracting productivity improvements that result from increases in capital assets, under the assumption that an investment in modern plants, equipment and technology automatically improves productivity.”[2] In other words, this method weighs productivity changes by how much improvement there is since the last time productivity stats were gathered. But if we can’t even agree on the best way to track productivity, then how can we know for certain if we’ve entered the productivity paradox?
Possible causes of the productivity paradox
Brynjolfsson argued that there are four probable causes for the paradox:
Mis-measurement – The gains are real but our current measures miss them. Redistribution – There are private gains, but they come at the expense of other firms and individuals, leaving little net gain. Time lags – The gains take a long time to show up. Mismanagement – There are no gains because of the unusual difficulties in managing IT or information itself.
There seems to be some evidence to support the mis-measurement theory as shown above. Another promising candidate is the time lag, which is supported by the work of Paul David, an economist at Oxford University. According to an article in The Economist, his research has shown that productivity growth did not accelerate until 40 years after the introduction of electric power in the early 1880s.[3] This was partly because it took until 1920 for at least half of American industrial machinery to be powered by electricity.” Therefore, he argues, we won’t see major leaps in productivity until both the US and major global powers have all reached at least a 50% penetration rate for computer use. The US only hit that mark a decade ago, and many other countries are far behind that level of growth.
The paradox and the recession
The productivity paradox has another effect on the recession economy. According to Neil Irwin,[4] This means that more and more companies are trying to do less with more, and that means squeezing two or three people’s worth of work from a single employee in some cases. According to Irwin, “workers, frightened for their job security, squeezed more productivity out of every hour [in 2010].”
Looking forward
A recent article on Slate puts it all into perspective with one succinct observation: Still, Brynjolfsson argues that mismeasurement of productivity can really skew the results of people studying the paradox, perhaps more than any other factor. Perhaps the paradox isn’t a death sentence for our productivity after all. Only time (and perhaps improved measuring techniques) will tell. On paper, the way GDP is calculated, the music industry is disappearing, but in reality it’s not disappearing. It is disappearing in revenue. It is not disappearing in terms of what you should care about, which is music.” Featured photo credit: Cathryn Lavery via unsplash.com
