Introduction Businesses are increasingly dependent on the effective use of computers. It is therefore important to understand what the economic impact is that computers have on businesses. Computer industries expanded more slowly during decades previous to the 1990s, which was consistent with the rate at which prices dropped. Productivity growth has correlated with the rate of rapid technical improvements in semiconductors. These improvements have led to cheaper production of faster processors, which resulted in productivity growth and economic growth. This paper will outline changes in productivity, changes in computers and their relation to economic growth on the economy of the Uni ...view middle of the document...
Dale Jorgenson makes the argument that rapid productivity increases in the United States during the 1990s resulted from accelerated product cycles in the semiconductor industry.Competition in semiconductor sales led to the departure from the traditional three-year semiconductor product-introduction cycle to a temporarily two-year cycle. This resulted in the introduction of new technology to consumers at a faster rate than in previous years. Businesses and consumers were presented with more advanced technology sooner than in the past.Productivity Growth Robert Solow's 1987 statement that computers can be seen everywhere except in the productivity statistics has become known as the "productivity paradox" -- referring to the absence of productivity gains in the 1970s and 1980s as technology advances were taking place. Studies on information technologies' productivity impact in the 1990s revealed computers had major positive productivity effects. However, these studies showed that productivity changes become visible only after a delay. Additionally, organizational changes and acquired skills and experiences are required for productivity benefits to take place. Organizations must adjust their operations to take advantage of the productivity potential of new technologies for investments in information technologies to become productive. This view suggests that productivity impacts are not guaranteed by investment in information technologies alone, but by when they are accompanied by changes in organizational practices.After a business has made adjustments to its operations to take advantage of its productivity potential, productivity impacts can be expected to become visible. Toward the end of the 1990s, a widely accepted view emerged that the productivity paradox was a temporary event and that computers and other information technologies had become one of the main drivers of economic and productivity growth. Rapid declines in price for computer equipment and semiconductors were an important force in the process. Dale Jorgenson states, "Despite differences in methodology and data sources, a consensus is building that the remarkable behavior of prices provides the key to the surge in economic growth." In addition, Robert Gordon goes on to state:"… Consensus emerged that the technological revolution represented by the New Economy was responsible directly or indirectly not just for the productivity growth acceleration, but also the other manifestations of the miracle, including the stock market and wealth boom and spreading of benefits to the lower half of the income distribution. In short, Solow's paradox is now obsolete and its inventor has admitted as much." (Gordon, 2003)The result is that increased information technologies investment brought about an increase in productivity and especially in manufacturing in the 1990s. Dale Jorgenson and Kevin Stiroh called these impacts on information technologies the "Phlogiston Theory of New Economy"...
