Information Technology and productivity

The link between IT investments and productivity has been debated over the last 20 years. Many studies have shown a tenuous link at best between the two. This study, released yesterday, is the latest in this discussion. The authors write:

In the new global economy information and communications technology (IT) is the major driver, not just of improved quality of life, but also of economic growth. Moreover, there are strong indications that IT has the potential to continue driving growth for the foreseeable future. Yet, most policymakers do not adequately appreciate this fundamental reality. In fact, after the post-2000 economic dip many concluded incorrectly that the IT economy was smoke and mirrors.

The reality is that while the benefits of new technologies are often exaggerated at first, they often turn out to exceed initial expectations in the moderate-to-long term. This is exactly what has happened with the digital revolution. The digital economy is more than fulfilling its original promise, with digital adoption rates exceeding even the most optimistic forecasts of the late 1990s. The integration of IT into virtually all aspects of the economy and society is creating a digitally-enabled economy that is responsible for generating the lion’s share of economic growth and prosperity.

Notwithstanding the centrality of IT to economic growth, there have been surprisingly few attempts to catalogue what is known about IT’s impacts on the economy. This report attempts to do just that by collecting, organizing, and surveying studies and examples of IT’s impact in five key areas: 1) productivity; 2) employment; 3) more efficient markets; 4) higher quality goods and services; and 5) innovation and new products and services.

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Importantly, the “IT engine” does not appear likely to run out of gas anytime soon. The core technologies (memory, processors, storage, sensors, displays, and communication) continue to get better, faster, cheaper, and easier to use, enabling new applications to be introduced on a regular basis. Moreover, the adoption of digital technologies by organizations and individuals continues to grow.

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IT boosts productivity in a variety of ways. It lets organizations automate tasks, freeing workers up to create value in other tasks. IT also has widespread complementary effects, including allowing organizations to fundamentally reengineer processes and lets organizations more efficiently use capital and natural resources. IT also has a number of indirect effects, which in turn spur higher productivity,
including enabling larger markets and better organizational decision-making.

In addition, IT boosts economic output by enabling more people to work. The IT industry itself creates jobs, on average paying 84 percent more than average jobs. Moreover, IT appears to be playing a key role in reducing the severity of the business cycle, allowing the economy to run at full capacity more of the time. Additionally, IT makes it easier for more people to join the workforce, including disabled people and people who cannot work full-time, but who can work part-time or from home.