Productivity: Technology isn't working | The Economist - 0 views
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Technology isn’t working
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n the 1970s the blistering growth after the second world war vanished in both Europe and America. In the early 1990s Japan joined the slump, entering a prolonged period of economic stagnation.
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Between 1991 and 2012 the average annual increase in real wages in Britain was 1.5% and in America 1%, according to the Organisation for Economic Co-operation and Development, a club of mostly rich countries.
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Real wage growth in Germany from 1992 to 2012 was just 0.6%; Italy and Japan saw hardly any increase at all.
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And the dramatic dip in productivity growth after 2000 seems to have coincided with an apparent acceleration in technological advances as the web and smartphones spread everywhere and machine intelligence and robotics made rapid progress.
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A second explanation for the Solow paradox, put forward by Erik Brynjolfsson and Andrew McAfee (as well as plenty of techno-optimists in Silicon Valley), is that technological advances increase productivity only after a long lag.
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John Fernald, an economist at the Federal Reserve Bank of San Francisco and perhaps the foremost authority on American productivity figures, earlier this year published a study of productivity growth over the past decade. He found that its slowness had nothing to do with the housing boom and bust, the financial crisis or the recession. Instead, it was concentrated in ICT industries and those that use ICT intensively.
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Once an online course has been developed, it can be offered to unlimited numbers of extra students at little extra cost.
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For example, new techniques and technologies in medical care appear to be slowing the rise in health-care costs in America. Machine intelligence could aid diagnosis, allowing a given doctor or nurse to diagnose more patients more effectively at lower cost. The use of mobile technology to monitor chronically ill patients at home could also produce huge savings.
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Health care and education are expensive, in large part, because expansion involves putting up new buildings and filling them with costly employees. Rising productivity in those sectors would probably cut employment.
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The integration of large emerging markets into the global economy added a large pool of relatively low-skilled labour which many workers in rich countries had to compete with. That meant firms were able to keep workers’ pay low.
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By creating a labour glut, new technologies have trapped rich economies in a cycle of self-limiting productivity growth.
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Productivity growth has always meant cutting down on labour. In 1900 some 40% of Americans worked in agriculture, and just over 40% of the typical household budget was spent on food. Over the next century automation reduced agricultural employment in most rich countries to below 5%,
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A new paper by Peter Cappelli, of the University of Pennsylvania, concludes that in recent years over-education has been a consistent problem in most developed economies, which do not produce enough suitable jobs to absorb the growing number of college-educated workers.