FRBSF: Will Fast Productivity Growth Persist?

John Fernald, David Thipphavong, and Bharat Trehan of the San Francisco Fed ask if the downward shift in productivity growth since mid-2004 is temporary or permanent:

Will Fast Productivity Growth Persist?, by John Fernald, David Thipphavong, and Bharat Trehan, Economic Letter, FRBSF: Strong productivity growth is essential for improving living standards and can have an important impact on economic policy, yet economists are far from being experts at predicting when the trend of productivity growth might shift. In the 1960s, productivity growth boomed, growing at an average annual rate of 2-1/2%. It weakened in the early 1970s, and for the next two decades or so averaged an annual growth rate of only about 1-1/4%. Then, in the mid-1990s, productivity growth boomed again, averaging about a 3% annual rate from the last quarter of 1995 through the middle of 2004. These shifts were not predicted and were generally not widely recognized until years after they occurred. Considering that, since the middle of 2004, productivity growth has averaged only about 1-1/2% per year, it may be time to ask whether this is just a "pause" in the boom that started in the mid-1990s or a shift back to the growth rates seen in the 1970s and 1980s. This Economic Letter begins to answer this question by focusing on the factors that underlay the most recent productivity boom and what they may portend for the future.

Information and communications technology and the productivity surge Technological innovation is often associated with productivity booms. The most obvious such innovations in recent decades have been in the production of information and communications technology (ICT), such as computers, software, communications equipment, and the like. But the channels for ICT to affect the overall economy are complex.

Economists identify three proximate or direct sources of higher labor productivity. First, workers have more and better capital to work with, also known as "capital deepening." Second, the workforce gains more education and skill. Third is total factor productivity, or TFP, a comprehensive term for everything not otherwise explained; the main reason TFP rises over time is innovation in products and processes.

Oliner and Sichel (2006) decompose labor productivity growth using annual aggregate data through 2005. They find that in the 1995-2000 period, both faster TFP growth and an increased contribution of capital-deepening raised labor productivity growth relative to the 1973-1995 period. Thereafter, however, investment was relatively weak, and the pace of capital deepening--especially of ICT capital--fell substantially. Yet labor productivity growth remained strong in the early 2000s because TFP growth accelerated even further.

Economists generally agree that a TFP acceleration in ICT production was a significant contributor to the acceleration in overall TFP during the 1990s, and the causes of the former are reasonably well understood. New product development, resulting especially from research and development, led to rapid improvements in computer technology; for example, competition between Intel and AMD led to a faster introduction of new semiconductor chips in the post-1995 period. This faster pace of technological rollout appears to explain a large share of the ICT productivity acceleration.

Many earlier studies argued that the acceleration in overall TFP was largely, if not entirely, due to innovations in sectors producing ICT goods. These innovations, in turn, raised labor productivity in the sectors that used ICT because of capital deepening; in particular, falling ICT prices reduced the effective cost to a user of purchasing high-tech capital, leading firms to increase their desired capital stock. From this perspective, there is no reason to expect an increased pace of innovation outside of ICT production.

Basu, Fernald, and Shapiro (2001), however, argue that the overall TFP acceleration was broad-based--not narrowly located in ICT production--and more recent studies (including Bosworth and Triplett 2003) have emphasized the TFP acceleration in the services sector. Over time, major official data revisions have affected the apparent size and timing of the acceleration in different sectors but haven't changed the general picture. Oliner and Sichel (2006) find that, in the 2000-2005 period, TFP in ICT production slowed and estimate that the acceleration in overall TFP is completely explained by non-ICT-producing sectors. A number of other studies have found similar results.

To explain how ICT can affect measured production and productivity in other sectors, a number of papers highlight the notion of ICT as a "general purpose technology" (GPT), much like electricity or steam power, in that it has pervasive and wide-ranging effects on how firms do business or even how people live. They also note that adopting new GPTs is neither easy nor instantaneous. First, firm-level studies suggest that benefiting from ICT investments requires substantial, costly investments in intangible capital, such as reorganization; for example, faster information processing might lead firms to think of new ways of communicating with suppliers or arranging distribution systems. These investments may include resources diverted to learning or purposeful innovation arising from research and development (R&D).

Second, the GPT literature suggests the likelihood of sizeable spillovers from ICT. For example, successful new managerial ideas--such as using ICT to build a new business information system--seem likely to diffuse to other firms. Imitation is often easier and less costly than invention, because you learn by watching and analyzing others' experimentation, successes and, importantly, mistakes. Indeed, firms that don't use computers intensively may also benefit from spillovers of intangible capital created by firms that use computers more intensively. For example, if R&D has sizeable spillovers, and if R&D is more productive with better computers, then even firms that don't use computers intensively may benefit from the knowledge created by computers.

Brynjolfsson et al. (1997) study the experience of a large medical products company following its decision to deploy computer-based flexible machinery. Management recognized that the project would involve not only the purchase of new machines but also a substantial amount of learning and a reorganization of the production process. While ultimately successful (so much so that the company painted factory windows black to prevent competitors from imitating its organizational and technical innovations), various hurdles led to an extended and costly period of experimentation and false starts; for example, production workers continued to use the new machinery as they had used the old, resulting in large inventories of work in process and finished goods. Ultimately, the firm physically isolated one section of its plant to experiment with different methods of reorganizing the production line.

Another study of about 500 large U.S. firms found that it took at least five to seven years for the full benefits of computers to be realized. At the industry level, Basu and Fernald (2007) find that the data are reasonably consistent with the predictions that in sectors that use ICT, ICT capital growth should, with long lags, be positively associated with TFP growth. In particular, they find evidence that ICT capital investments in the late 1980s and 1990s are positively correlated with the TFP acceleration in the 2000s. They conclude that these results are reasonably consistent with the firm-level evidence.

Is the era of rapid productivity growth over? To begin to answer this question, it is useful to look first at whether the pace of innovation in the ICT sector has slowed. Though this is not easy to measure, some have argued that the relative price of ICT sector output provides a (rough and ready) indicator of technical progress in this sector (see Doms (2005), for instance). Other things remaining the same, the faster the rate of technical progress in the ICT sector, the faster the rate at which the price of ICT goods falls against other prices in the economy. It turns out that the price of information processing equipment and software (relative to the GDP deflator) fell at close to a 6-1/2% rate over the 1973:Q1-1995:Q3 period; the rate of decline accelerated to 8-3/4% over the 1995:Q4-2000:Q4 period but has fallen back to 6% since. Based on this evidence, as well as the studies mentioned earlier, one could argue that the pace of technical progress in the ICT sector has slowed, but there is no way to tell whether this slowdown is temporary or permanent.

If the productivity slowdown in ICT production is permanent, should we then expect productivity growth in the ICT-using sectors to fall back to the rates seen before the boom? The GPT literature suggests that the answer is no. DeLong (2002) points out that, even though the period of double-digit annual productivity increases in steam-power and textile-spinning machinery ended in the early 1820s, these technologies made their major contribution to economic growth in Great Britain in the subsequent 50 years. Similarly, David (1991) emphasizes that the benefits of the electric motor took nearly half a century to spread, as firms learned how to make more efficient use of the technology.

Is ICT likely to have the same impact that earlier GPTs did? At least one metric suggests that it could. It has been pointed out that ICT prices have fallen far more dramatically than prices of GPTs like electricity and the internal combustion engine, and the resulting decline in the price of capital goods is unprecedented. This suggests that we might expect productivity growth to remain elevated for a while yet.

Furthermore, recent data for nonfinancial corporations suggest that productivity growth might not have slowed quite as much as the nonfarm business sector data indicate. It has been argued that data for nonfinancial corporations (whose output amounts to about 70% of nonfinancial business sector output) is better measured than for the noncorporate and financial sectors of the economy. As Figure 1 shows, productivity growth in nonfinancial corporations has tended to track that in the overall nonfarm sector reasonably well, but the former has not slowed as much over the past year. (At press time, we have data for nonfinancial corporations through 2006:Q3 and for nonfarm business through 2006:Q4.) The reasons for the divergence are not clear. The underlying source data are different, since nonfinancial corporate output is measured from data on income, whereas nonfarm output is measured from data on expenditure. While the national accounts are designed so that, in principle, income and expenditure necessarily grow at the same rate, the two measures rely on different surveys, so there can be a "statistical discrepancy" between them.

Conclusion At the peak of the "New Economy" hype of the late 1990s, many claimed, "The Internet changes everything," and, by implication, that it happened overnight. But the history lessons from GPTs, like electricity and steam power, as well as recent theoretical and empirical work, suggest that the necessary complementary investments and innovations that drive change unfold only slowly over time. Thus, it could be that the promise of recent technological advances will continue to be realized. To the extent that ICT is, indeed, a GPT on a par with the electric dynamo, the returns to innovation (whether managerial innovations or the development of new products and processes) might remain high for some time to come. The strength of productivity growth in nonfinancial corporations provides another reason for hope that underlying productivity trends remain strong.

None of this is meant to argue that trend productivity growth will revert to the 3% rate seen around the turn of this century; we are arguing instead that--in the near term--trend productivity growth is unlikely to revert to the rates seen during the 1970s or 1980s. But these are not statements that can be made with a high degree of certainty. As we confessed at the outset, economists, including us, do not have a winning record in predicting the path of productivity growth.

References

Basu, Susanto, and John Fernald. 2007. "Information and Communications Technology as a General Purpose Technology: Evidence from U.S. Industry Data." Forthcoming, German Economic Review.

Basu, Susanto, John Fernald, and Matt Shapiro. 2001. "Productivity Growth in the 1990s: Technology, Utilization or Adjustment?" Carnegie Rochester Series on Public Policy, December.

Bosworth, Barry, and Jack Triplett. 2003. "Services Productivity in the United States: Griliches Services Volume Revisited." Brookings Institution.

Brynjolfsson, Erik, Amy Austin Renshaw, and Marshall van Alstyne. 1997. "The Matrix of Change." MIT Sloan Management Review 38(2) pp. 37-54.

DeLong, J. Bradford. 2002. "Productivity Growth in the 2000s." NBER Macro Annual, pp. 113-145.

David, Paul. 1991. "Computer and Dynamo: The Modern Productivity Paradox in a Not-Too-Distant Mirror." Technology and Productivity: The Challenge for Economic Policy. Paris: OECD.

Doms, Mark. 2005. "IT Investment: Will the Glory Days Ever Return?" FRBSF Economic Letter 2005-13 (June 17).

Oliner, Stephen, and Daniel Sichel. 2006. Unpublished update to "The Resurgence of Growth in the Late 1990s: Is Information Technology the Story?" Journal of Economic Perspectives 14 (2000) pp. 3-22.

Comments

[Bruce Wilder]

"Economists identify three proximate or direct sources of higher labor productivity."

Energy and control and capital.

Well, one of out of three.

[Martin]

I note the point concerning the timelag between a technology's initial introduction and the visibility of its beneficial effects (which DeLong presumably assumes is a constant for all new technologies); but there might be a difference between ICT and the steamship or the dynamo. It's the 'I' and the 'C'.

ICT enables users to communicate with other people; but is that the limit of its utility? You can do absolutely anything with cheap electric power; but can the same be said of a PC?

Perhaps ICT, in its current form, has reached the limit of its usefulness, and the dreaded 'human factor' is taking over. Productivity is like taxation; just as it's people who pay taxes, it's people who are productive. Maybe the people using the ICT have made all the short term gains they can from it; and a new generation of technologies might be required to see a similar boom again.

[Robinia]

"The reasons for the divergence are not clear. The underlying source data are different, since nonfinancial corporate output is measured from data on income, whereas nonfarm output is measured from data on expenditure. While the national accounts are designed so that, in principle, income and expenditure necessarily grow at the same rate, the two measures rely on different surveys, so there can be a "statistical discrepancy" between them."

The reasons for the divergence seem visible to me, unless I have something askew in my thinking.... Temporal shifting of expected future gains to the present-- betting today's expenditures on faith in knowing the location in time and space of expected future capital gains-- has been a major component of a more highly networked and innovative financial services industry, aided by ICT. That has encouraged a more speculative and volatile market for financial services' firms underlying assets-- the churning creation and popping of asset bubbles in a wired world where news travels fast. While standard concepts like "productivity" work in analyzing the "long waves" of technological innovation on past economies, they are less useful in present and future economy analysis, unless the confounding effects of financial services and communications innovations are removed. The truing of national accounts is simply accomplished through adjustments in the value assigned to assets in the market... is the worth of your house today justifying your faith last year in what it would be worth today, and the spending you did based on that faith?

More and more, in a world of instant communicative access between people, CREDIT and CREDO matter. The future economy will be much more what investors collectively believe it should be... we will invest more in what we believe will bring that future to pass... and what we believe will be determined by viral social learning through enhanced ICT.

Have "the people using the ICT...made all the short term gains they can from it"? Only if we continue to limit the measure of progress to the capacity of humans to make more "things" and more financial transactions. "Strong productivity growth is essential for improving living standards" is only true for societies to a certain point-- beyond that stage of development, social progress in improving living standards is not strongly correlated with more things and more numerous (and sometimes more speculative) financial transactions.

[calmo]

I take in this bit:Considering that, since the middle of 2004, productivity growth has averaged only about 1-1/2% per year, thinking of Bruce Webb's reaction to SSTF's unexplained revision of it's productivity number or it's recent series of productivity numbers...until I get to the graph which illustrates the enormous volatility.
The repeated "non-financial corporation" productivity just plain worries me, knowing that this component of the economy is growing, is large enough to warrant specific exclusion and, is impossible (maybe only for me) to extradite those financial decisions from your non-financial business ( eg growing cabbages *and* taking no bets on the weather).

Nonetheless, I like Martin's Perhaps ICT, in its current form, has reached the limit of its usefulness, and the dreaded 'human factor' is taking over. which invites me to view that graph's declining segments as evidence of the "human factor" weighing in against those genuinely "productive" people with the new generations of technology.
But I think the graph tells us something else: productivity measurement is tainted with that dreaded 'human factor'. Could productivity be really this volatile or are our instruments incapable of performing the task?
The "long and variable lag" response to FF rates and mortgage rates (which is invoked when externalities like foreign cb intervention in fx and tbill purchases are ignored) suggests to me that we are ruling financial corporations out of the picture disingenuously.

[Bruce Wilder]

Martin: "You can do absolutely anything with cheap electric power; but can the same be said of a PC?"

You need a sound theory of production, before you can analyze productivity, without sounding like an idiot. Taking a broad view of the progress of the industrial revolution, I can see identifying three, (or four or five -- no reason to be doctrinaire) factors, only one of which is mentioned explicitly in the analyses reported in the post, which, instead, reference black box abstractions.

Sure, there are good reasons for thinking that the enhancement of communications and computing systems by the rapid advance in the power of integrated circuit technology, will have a very broad impact.

"like electricity" is wrong, because the broad impact of electricity involves an analytically different aspect -- the application of energy to work.

The advances in communication and computing enhance control. The monitoring and computational requirements of effective control are becoming cheap -- very cheap -- for the first time in human history. That's so beyond HUGE in its implications, that I cannot even express it.

To have even a glimmer of the implications of enhancing control, you'd need some analysis -- some theory -- of what control is, and what it's economic function is. In short, you have to know what the role of control is in production, to understand even an outline of the implications of enhanced control to productivity.

It is not as if there is no theory of control, or even that it is not recognized at all in economics. But, it is not connected to the theory of production in Economics 101, just as energy and pollution are not connected to the theory of production. It is, to my mind, an appalling state of affairs, which leaves economics largely unable to say anything intelligible on the a number of topics closely related to productivity and the future course of the economy, including peak oil and global warming.

[cm]

In office environments, a good part of both productivity increases and "productivity increases" come from automation and elimination of almost all clerical staff. In the "old days", almost every manager had a secretary, and the dept. had a filing/copy/etc. office, now you have one secretary per VP or so. Now most clerical activities have been computerized and/or pushed over to the professional staff. Clearly there is a limit to that, which is pretty much reached IMO. And in part the secretaries have been replaced (in headcount, not occupation) by additional management layers, compliance officers, etc.

Regarding automation, while that has quite likely not run its course, speeding up the actual work only emphasizes there is a limit to how fast humans can think and communicate, and the limiting factor shifts from technology to human organization and affairs. One small aspect of that is described by the proverb "a fool with a tool is still a fool".

[thatguynhou]

Economics is not my field, so forgive me if I missed the question I'm about to raise.

My question is simply, why is there no mention of workers working more hours and being required to do more work as it relates to productivity? It has been my experience, that companies always want to "move the needle" further than last month, last quarter, and last year. In some micromanaged situations they want the numbers to move daily or weekly.

As a commenter mentioned above, staff reductions are commonplace, yet the work, and the increase workload,still needs to be done by someone.If a single worker is doing the work of 2 or 3 people, often euphemistically referred to as "multitasking", surely this plays a major part in productivity growth and perhaps the slow down can be in large part attributed to there being only so much a worker can do even with the advent of ICT'S.

[Bruce Webb]

cm, the limits have not even been reached. And the results will just as you point out: elimination of lower level clerical staff and the mid-level supervisors that oversee them.

The traditional file room and supply room are going to go away: the file room will go virtual and the supply room replaced by daily delivery by Corporate Express. Also this is probably not a good time to enter the fast paced word of Courier Work. It does not make sense to pay somebody $30-$50 bucks to run signing documents when you have verifiable electronic signing capacity. Which we do.

A whole bunch of pain is coming to the office and that pain is going to be focused on the working class. A fact that raises a whole set of issues on its own.

But paper is expensive. And so are benefits packages. Paying people to file paper no longer makes economic sense. High speed scanning is cheap, burning to portable media is cheap, off site digital storage is pretty cheap. You can expect even archival paper copies to start disappearing.

Because apart from the paper costs you pay for corporate space by the square foot. Every 2x3 foot file cabinet costs you money each and every month. As does the cubicle of the file clerk that retrieves and refiles the document. There are huge savings to be had in office productivity, changes that flow almost immediately to the bottom line.

The biggest missing piece is document management and form and version control. You have to make the whole thing simple enough that even a Manager can use it. (I wish that was a joke. Not in my experience.) But once that is in place then those file cabinets will start disappearing. It is astonishing how much floor space we are talking about here.

It is going to be tough on workers but once the model is successfully implemented it will spread like wildfire. Because the dollars are right there. When managers see other divisions or the competition operating with 50% less space and 33% less staff the pressure is going to be on to produce equivalent results within the same budget.

Look I have been working on projects of this type since 1981 as a smaller or larger component of my overall assignment. Most of the obstacles were technical: scanning being too slow and storage too expensive. Too there were some serious issues of retrieval and display. In just the last few years those obstacles have vanished. In the small real estate investment company just left they are putting this to the test. The State told them they did not need to keep paper records beyond a limited time, they got a high speed scanner that would take mixed originals and went to town. This was not a big operation, about a dozen employees total, and our archive was in the bosses garage. This technology is affordable and the bottom line results are almost immediate: my boss got that corner of his garage back.

We can call it insourcing. You take huge chunks of your back office and scan it into that server. Because from the perspective of management that is just expensive dead weight.

It won't be pretty. But it will happen.

[cm]

Bruce Webb: Where is all the clerical staff that you think is there to be reduced? I'm not seeing them. Also don't underestimate the size of corporate workforces or consultants needed to create, maintain, fix (!!, perhaps more so than anything else) and operate the computer systems (but then, maybe these bit-shufflers are on the "plus" side of productivity, as opposed to paper-shufflers).

As you talk about file cabinet space (and neither can I see those), file cabinets take up space, but not energy (except to ventilate, heat, or cool that space), and of course (arguably) the energy to print the paper, produce it, etc. But many "Silicon Valley" companies have found themselves in a situation where the sheer number of their computers has exceeded the capacity of power lines, cooling equipment, and building safety codes, forcing them to "outsource" data centers off-campus, with the technical and administrative overheads that creates. Much of that is compute farms used by product groups, but nonetheless it tells a story.

[cm]

thatguynhou: "My question is simply, why is there no mention of workers working more hours and being required to do more work as it relates to productivity?"

No mention by whom? As it comes to reported hours, it is in both numerator and denominator of (hourly) productivity, as for unreported hours they simply don't exist, outside of your or my experience.

[Archer]

How do the hedonic price adjustments factor into this? I recall there was skepticism voiced in some circles about them, because they inflated our GDP and also made our productivity numbers look good. I recall the Bundesbank complaining that if they calculated their GDP the way we did, their GDP growth would be half a point higher. And I also very dimly recall a Barron's article that reported that if you peeled back productivity growth and attributed it to SIC codes, a very high (as implausibly high) proportion was attributed to computer hardware manufacture, raising the question of whether the productivity stats were any good.

Now are the hedonic adjustments for some reason less flattering of late? Are companies keeping their computers longer, or the price/performance gains less dramatic?

[cm]

Bruce Webb: I had the privilege of having gotten some glimpses of how things get done in corporate IT on account of HR, payroll, and misc and sundry other stuff. The whole "efficiency" is only there because generally IT and the workflow design/execution interface in the respective depts. are woefully understaffed, and substantial overtime is extracted from those people without overtime pay, all of which are "professional" workers exempt from the overtime provisions of the FLSA. With some luck, there is a bonus or profit sharing program compensating for a fraction of the overtime (and not at 1.5). Many of the problems are caused by incompetent or otherwise unreasonable/inconsiderate management, and requirements changing by the week, or not fixed and signed in blood upfront, but then those are the prerogatives of upper management. No amount of wonderful technology will address these underlying issues and the human factors causing all the small frictions.

None of this of course is to say that computerization won't still progress greatly. I'm just disputing that it will bring us sustained increases in actual efficiency (not merely reducing the impact of unnecessary busywork conducted in order to gratify egos or provide the in/output to somebody's actionism or justification of existence), or the "paperless office". Well, of course you can go paperless by simply not ordering paper anymore, so that people cannot print all the stuff they now keep in their "private" filing hoards.

[Bruce Webb]

"Where is all the clerical staff that you think is there to be reduced? I'm not seeing them."

Where do you work? Because there is an abundancy of clerks in the governmental sector. And the financial sector.

"Well, of course you can go paperless by simply not ordering paper anymore, so that people cannot print all the stuff they now keep in their "private" filing hoards."

That is a feature and not a bug of my argument.

That you may work in some bleeding edge office environment where all of these innovations are built in doesn't mean there are not huge efficiencies to be had elsewhere.

Years ago the banks had a Road to Damascus moment. If they could just charge you for talking to a teller you would choose to punch buttons on an ATM. If you think this dynamic has just played itself out I invite you to drop by the local DMV to renew your license. As opposed to renewing it online.

[cm]

Bruce: I'm working in a software product group, which is admittedly light on the clerical stuff, and I have seen some other places here and there, none of which is bleeding edge by any description. I'm not disputing that there is still a lot of inefficiency around, but how much of the inefficiency is really in the paper versus in the process, or its administration?

Maybe we are talking about different things. What I mean is the "clerical overhead" in places doing things that (should) have little to do with pushing paper, e.g. hardware/software development. In such places much of the clerical staff has already been cut out, and the inefficiencies are certainly not manifesting themselves as people pushing around paper. But a good number of bits are being pushed around. That's not efficient either, as it's a drag on everybody's time.

I'm not trying to dispute your core arguments, but provide a caution that only because things are done in the computer that alone doesn't make it "efficient", as the basic time drain of reading and producing the documents is largely still there. What is "optimized" is only running to the printer, dropping the envelope, and all the other paper-moving stuff. Then suddenly you realize that because document dispatch is now so easy you generate and get 10 times as much, and the imputation is that you "save" the paper expense of that larger amount, generating which is perhaps humanly and physically impossible.

Previously you would spend 2 hours each day writing, sending, reading, and discussing memos, today you spend those 2 hours on a multiple of that emails. But it's "efficient".

[Martin]

Bruce Wilder,

Thanks for the clarifications. I be no economist!

"Sure, there are good reasons for thinking that the enhancement of communications and computing systems by the rapid advance in the power of integrated circuit technology, will have a very broad impact."

Point taken. Where we might disagree is that I think this has already happened.

'"like electricity" is wrong, because the broad impact of electricity involves an analytically different aspect -- the application of energy to work.'

It was a bad example. What I wanted to express was a foggy notion of how one development can revolutionise processes, and how ICT has done that.

It's still foggy. But when you write,

"The advances in communication and computing enhance control."

you manage to articulate something I've been trying to say for four years.

Control is the key to the whole ICT success story. Anecdotal, personal examples are never the strongest evidence - but the control element is certainly true in my experience; and it might help explain a whole lot of other stuff.

I have a lot of time working as a call centre operator under my belt, both inbound and outbound, inhouse and outsourced, telesales and customer services. Every minute of every single one of your days is capable of being measured, picked through, spreadsheeted and analysed. You're targetted for the numbers of calls you take, the length of time you're on each call, your ability to solve each problem, etc.

None of this would be possible without ICT; and similarly, the almost existential changes that have taken place to how people are paid, in the UK at least, would have been impossible to implement.

Take a look at the graph attached to this release for the UK's Office of National Statistics -

http://www.statistics.gov.uk/CCI/nugget.asp?ID=10

Wages including bonus look relatively static - but wages without bonus are declining, while even the (politically rigged, European standard) Consumer Price Index is rising.

This might be too much of a hyperleap to make, but from what I've seen day in, day out for four years, this would not have been possible without what you've described perfectly as the 'control' aspect of ICT. It enables management to move the performance bar up or down as easily as one moves the margins on a 'Word' document; and its most important impact has been to render the very concept of 'employment' so fungible that nobody thinks anything of having part of what they used to receive in salary payable to them as bonus. They're doing the same volume of work as they used to; but they're having to run harder and harder to stand still.

I fear what will happen to social cohesion and the rule of law when the British working public realises the scale of the scam that's been perpetrated on them.

And it all means that we must continue to keep vigil, like Rangers on the borders of The Shire, against the George Mason goons and their goonlike acolytes who shout 'We're all getting richer!' - because in the face of such evidence they will only become more and more shrill, less and less reasonable.

Economics is a science at war with itself; but it is much more preferable for economists to be at war with each other than brothers. That's what those goombahs don't seem to realise.

[++]

cm,

Clearly you and I live in different worlds. I recently took out a HELOC, a home equity line of credit, and had to sign and or initial dozens of pages, previously I worked in government and we required people submitting for subdivisions to submit up to 25 copies of certain sets of plans. In that same government department if you wanted to get a question answered about zoning you had to drive through some of the worst traffic in the country, sit in the lobby for up to two hours, and then get a two-minute answer to your question. Customers could easily spend three to four hours of their time to get two minutes of my time.

While I was there I was actively involved in several projects that would allow our customers to recapture that time and hence that productivity. We already had done some pretty cool things but were not even remotely approaching efficiency limits.

Ever been to the DMV? Ever waited in a doctor's office? That is all dead time and while some of it is unavoidable a lot is not.

You are making an implicit appeal to Parkinson's Law, that work expands to fill the time available. Well absent control Parkinson's Law can operate, with sensible control that productivity can be tapped. I left my last job but one because they tried to implement a level of control that didn't make sense given the kind of work we were doing, our tasks were not standardized enough that you could properly measure that we were spending either too much or too little time on them and our work was atomized to the degree that trying to track it would have distorted the data, in order to accurately track what I personally was doing would have probably taken 25% of my work day. Timesheets and multi-tasking are uneasy bedmates.

But I can say there is a long distance between the average real estate financial operation or government office and software development, there are all kinds of paper and time that can be boiled out.

[cm]

++: Certainly, but I can report only what I see (in my world).

"Ever waited in a doctor's office? That is all dead time and while some of it is unavoidable a lot is not."

This is the friction of unpredictable physical process -- there is volatility in the doctor's business, once something gets delayed, it's difficult to recover. Do you want to be the guy on whom the doctor makes good the 10 minutes he lost with the previous person? Waiting (hopefully in a suitable environment) also has the not unwelcome side effect that your blood pressure and heart rate goes down and the readings that will be taken actually make sense.

Regarding "dead time", I recommend James Gleick, "Faster". He presents the contrast between Western and African views on "idle" time -- Westerners call it "wasting time", some agrarian African subcultures call it "making time". Of course they are referring to time spent in natural settings, not in some DMV line or behind the wheel in stuck traffic.

[calmo]

I like cm's suggestion upthread that the office staff/secretaries have been replaced by IT technicians on maintenance schedules.
Still an improvement in productivity but not as clear cut as one might have assumed.
A couple of gnawing things: the rise of services (the decline of goods) makes the measurement of productive labor that much fuzzier (eg That was no massage, that little back rub!); the rise of undocumented labor (not merely the Mexicans but the uncounted hours you put in that are reimbursed by hopes of a raise, a bonus, a continuing temporary position, a short field trip to some nasty part of the world...); the exclusion of financial corporations (and I think really all managers who take all the credit (regardless of the countless unproductive hours wasted in these endeavors) for any productivity increases.
This metric which allows us to slap ourselves on the back for being such Progressive Creatures, may not transmit across decades as well as we would like. How many hours did it take to make a Model T? It is a fairly easy job compared to the job of counting all the hours it took to make that new Mustang, in part because there is a significant financial component. How much more product is the Mustang? It goes 3 times as fast so like computers officials hedonically adjust, but depreciates even faster but we prefer the image of Progressive Creatures to the others...