Précis
New economy and productivity
The ‘Net and the labor market
The "new economy" has become a popular topic of discussion, in the Review and elsewhere. In "Productivity Growth and the New Economy" (NBER Working Paper 8096), William D. Nordhaus of Yale University adds to the discussion by estimating the effect of the new economy on labor productivity growth. This study is the third of a series of three recent papers by Nordhaus on productivity measurement.
In this latest paper, Nordhaus presents alternative productivity measures using concepts and data that he describes in the second paper of the series. He uses "income-side" output measures in his productivity calculations, in contrast to standard productivity statistics such as those published by the Bureau of Labor Statistics, which uses "product-side" output measures. (The "sides" refer to which part of the national accounts serve as the data source.)
The productivity series that Nordhaus constructed for the business sector increased at a slower rate than the corresponding BLS series in 1977–95. However, in 1996–98, his series grew more rapidly than the BLS series.
Nordhaus examines the contribution of the new economy to business-sector productivity growth. For measurement purposes, he defines the new economy as machinery, electric equipment, telephone and telegraph, and software. He finds that one-third of the acceleration in business-sector labor productivity in 1996–98 is due to the acceleration in the new economy’s contribution to productivity growth. He does caution that his results are likely to underestimate the effect of the new economy because they only include the direct contribution of it.
In addition to their impacts on capital stocks and industry production, the Internet and the new economy are having effects on the institutions and functioning of the labor markets. David A. Autor’s article, "Wiring the Labor Market," in the Journal of Economic Perspectives analyzes three aspects of the labor market in which the forces of the new economy are likely to have significant consequences.
Job search is likely to become more efficient. There may already be some evidence of this. The index of help-wanted advertising, which usually rises as unemployment falls, has been relatively flat even as the unemployment rate fell to 30-year lows in the late-1990s. This is consistent with a shift of the Beveridge curve—a negative relationship between vacancies and joblessness—toward its origin. If job search is indeed becoming more efficient, Autor points out that labor market theory predicts an improvement in productivity. As the number of potential matches employers and workers can consider goes up, the "reservation match quality" rises on both sides of the table.
There may also be changes in the way labor services are delivered, according to Autor. "Remote access to e-mail and company documents will enable many workers to perform some or all of their work from home or elsewhere." One efficiency gain from such remote locations is that unproductive commute times may be reduced and there is also some evidence that employees who use Internet access at home actually spend more hours working at home without spending less time working in the office. Autor attributes this to the possibility that "by increasing the productivity of working at home, telecommuting may induce substitution from leisure to production."
Finally, the demand for labor may depend less on local labor supplies. Says Autor, "…businesses are likely to subdivide work into component parts, ship subtasks electronically to sources of labor supply, and use information technology to coordinate the geographically dispersed production process." This might lead to the reallocation of work to regions where labor is least costly and will allow producers to find economies of scale that smaller, more localized markets for their products would not support. As producers thus arbitrage regional wage differentials, Autor points out that there is the theoretical possibility that wages would become more equal and some high local rates of unemployment could be reduced.
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