Economist.com | Economics focus

A controversial article regarding the productivity gains brought by Information Technology appeared on The Economist (Economics focus: Computing the gains). Productivity gains are a controversial topic because a cynical interpretation is "put a PC in your desktop and you are done!"....obviously the software and hardware vendors use this numbers to construe its marketing claims.

Here are excerpts of the article:
"AFTER years of debate about the virtues or vices of the so-called “new economy”, most economists now agree that America has, indeed, enjoyed stronger productivity growth since 1995, thanks largely to investment in information technology (IT). However, many also agree that Japan and Europe, for some reason, seem to have missed out on computer-driven productivity gains. The growth of labour productivity in Japan and most European countries has actually slowed since the mid-1990s. New research, however, suggests that the economic rewards from IT have spread outside America, but have not been measured correctly.

Conventional wisdom has it that Europe and Japan have been slow to invest in IT, partly thanks to rigidities in labour and product markets that reduce the return on such investment. However, Dale Jorgenson, an economist at Harvard University and one of the first to spot the impact of IT on America's economy, finds evidence that IT has boosted growth in Europe and Japan*. His conclusions are based on internationally comparable data and a new method of analysing the sources of growth."

"The evidence suggests that Europe's productivity growth in IT-using industries lags behind America's. Rigid labour markets prevent firms from taking full advantage of new technology, because it is harder to lay workers off. This blocks the reallocation of workers to more productive jobs. But things may not be quite as bad as they seem. Europe's gradual labour-market reforms are designed to pull lower-skilled, less productive workers back into jobs. Such reforms deliberately make growth more job-intensive and thus in the short run they are likely to depress productivity growth. In the long run, however, such reforms should boost the rewards from new technology."