Beyond the productivity paradox

Abstract

Productivity is a simple concept.It is the amount of output produced per unit of input.While it is easy to define, it is notoriously difficult to measure, especially in the modern economy.In particular, there are two aspects of productivity that have increasingly defied precise measurement: output and input.Properly measured, output should include not just the number of widgets coming out of a factory, or the lines of code produced by a programming team, but rather the value created for consumers.Fifty years ago, tons of steel or bushels of corn were a reasonable proxy for the value of output.In today's economy, value depends increasingly on product quality, timeliness, customization, convenience, variety, and other intangibles. Why Should We Care About Productivity?An important question that has been debated for almost a decade is whether computers contribute to productivity growth.Productivity isn't everything.However, as noted by the economist Paul Krugman, in the long run it is almost everything.Productivity growth determines our living standards and the wealth of nations.This is because the amount a nation can consume is ultimately closely tied to what it produces.By the same token, the success of a business generally depends on its ability to deliver more real value for consumers without using more labor, capital, or other inputs.