The Productivity Paradox: Is Technology Failing or Fueling Growth?

Volume 15, Number 4
Fourth Quarter 2013

Graphic of technology and the U.S. economyThe recovery from the 2007–09 recession has dragged on by historical standards. Although the sluggish recovery may simply be a consequence of the depth and severity of the downturn, some economists point to deeper, structural problems as the cause of the stagnation.

Atlanta Fed senior economic research analyst Andrew Flowers considered the debate in "Slowing Productivity and Technology: U.S. Prospects for Long-Run Growth," featured in the fourth-quarter issue of EconSouth.

"However you slice the data, it seems the U.S. economy has experienced a slowdown in productivity growth," Flowers wrote. The slowdown has implications for economic growth, potential employment, and investment.

The slowdown in productivity—in particular, a slowdown in total factor productivity (TFP), which measures more than just labor and capital—is often a launching point for the techno-pessimism versus techo-optimism debate, he explained. Techno-pessimists argue that technological innovation is no longer contributing to economic growth the way it used to. Techno-optimists argue that the economy is poised for bursts of innovation, or that the economy has not yet experienced all the benefits of the innovations of the last few years.

Even techno-optimism has implications for labor markets. Technological advances could boost some workers' productivity while displacing other workers, a theory Flowers described as skill-biased technical change. And technical automation could contribute to labor market polarization—rising demand for workers at the high and low ends of the skills spectrum coupled with lower demand for middle-skill workers.

But the mainstream view holds that the economy is working its way out of a cyclical spell of low-productivity growth. "In this view, technological innovation has not plateaued or become permanently depressed, nor are we on the precipice of a massive labor-displacing technological revolution," Flowers wrote.

Given the role that productivity and technology play in long-run economic growth, the debate is likely to continue, he concluded. To learn more, read the full article in the fourth-quarter 2013 issue of EconSouth.