Industrial Origins of the US productivity revival 1995-2005

Dale Jorgenson, Mun Ho,

Kevin Stiroh, Jon Samuels

2008 World Congress on National Accounts and Economic Performance Measures, Washington DC.

May 13, 2008

Topics

-3 ways of constructing aggregate GDP from industry accounts

-the role of IT-producing, IT-using and non-IT industries in U.S. productivity growth 1995-2000 vs. 2000-2005

-the contribution of labor input in the productivity revival

Information Technology and the American Growth ResurgenceJorgenson, Ho and Stiroh (2005)

Industry Origins of the American Productivity Resurgence,Jorgenson, Ho, Samuels and Stiroh (2007), Economic Systems Research

( , , , , )j j j j j jY f K L E M T

Industry gross output production function:

( , , ) ( , )j j j j j j jV V K L T Y f E M

Value added of industry j:

j=1,…85 using the SIC

3 ways of describing aggregate GDP

-aggregate production function GDP = V1 + … + Vn = f(K,L,Tagg)

-aggregate ppf GDP = Vppf(V1, … ,Vn) = f(K,L,Tppf)

-Domar-aggregation over industries GDP = Vppf(V1,V2,…,Vn) = f(K1,…Kn,L1,…Ln,T1,…Tn)

ˆ ˆppf REALL REALLt jt jt t t

j

T d T K L

ln lnVjt jt

t jt jt jtj t

P VGDP w V w

nGDP

Aggregate GDP from Production Possibility Frontier;translog index of industry value added:

IT prod IT using non-IT

ln ln lnjt jt jt jt jt jtj j j

w V w V w V

Focus on 3 industry groups:

IT Producing (3% GDP)Computers & Office EqCommunications Equip.Electronic ComponentsComputer services

IT Using (26%) non-IT (71%)Aerospace FarmsMedical Equipment Oil miningPublishing Motor vehiclesAir transportation TruckingTelephone and telegraph Retail tradeWholesale trade HospitalsNondepository inst; brokers …InsuranceEducation…

Classification of industries

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1960-1995 1995-2000 2000-2005

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trib

uti

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(%

)

Non-IT Industries IT-Using Industries IT-Producing Industries

Industry Contributions to Value Added GrowthValue added weighted contributions of industry value

added.

Comparing

aggregate production function

GDP = V1 + … + Vn = f(K,L,Tagg)

aggregate ppf

GDP = Vppf(V1, … ,Vn) = f(K,L,Tppf)

Production Possibility Frontier vs Aggregate Production Function

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1960-1995 1995-2000 2000-2005

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row

th (

%)

Aggreg. Production Function Prod. Possibility Frontier

ˆ ˆppf REALL REALLt jt jt t t

j

T d T K L

Domar aggregation over industries.

Aggregate TFP growth is the sum of industry TFPgrowth and reallocation of capital and labor.

-0.12 -0.07 -0.02 0.03 0.08 0.13

Lumber and woodDrugs

Transportation svcs & PipelinesCoal mining

Agri services, forestryMisc manufacturing

Water transport.Petroleum and coal products

Measuring instrumentsPrimary metals

Printing and reproductionComputer services

Communications EquipmentPersonal services

Medical equipment and opthalmic goodsOther Instruments

Audio and video equipElectric utilities (pvt)

Furniture and fixturesNonmetallic mineral products

Paper and alliedApparel

Trucking and warehousingAir transport.

Other Electrical machineryOffices of health practitioners

Fabricated metal prdChemicals excl drugs

Motor vehiclesRetail trade; motor vehicles

AerospaceRailroad transportation

Rubber and misc plasticsTextile

Depository InstFood

Telephone and telegraphFarms

Retail trade exc motor vehElectronic Components

Real Estate- otherWholesale trade

Computers & Office Eq

Industry Contributions to Productivity Growth, 1960-2005Domar weighted contribution.

-0.12 -0.07 -0.02 0.03 0.08 0.13

ConstructionOil and gas extraction

Business svc exc computerHospitals, private

Insurance carriers, ins agents, servicesGas utilities

Radio and TVLegal services

Misc professional servicesEducational services (private)

Eating and drinkingPublishing

Auto servicesMisc repair

TobaccoNondeposit; Sec-com brokers;InvesNursing and personal care facilities

Health services, necWater and sanitation

Metal miningHotels

Motion picturesPrivate households

Federal gen govt excl healthFederal govt enterprises

Government HospitalsGovt other health

S&L educationS&L excl health,educS&L govt enterprises

MilitaryResearch

Nonmetal miningFishing

Insulated wireSocial svc and membership org

LeatherOther Transportation equipment

Machinery excl computersShips and boats

Recreation servicesLocal passenger transit

Industry Contributions to Productivity Growth 1960-05 (cont.)Domar weighted contribution.

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1960-1995 1995-2000 2000-2005

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row

th (

%)

non-IT IT-Using IT-Producing

Industry Contributions to Productivity GrowthDomar weighted

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1.6

1960-1995 1995-2000 2000-2005

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al g

row

th (

%)

non-IT IT-Using IT-ProducingReallocation of K Reallocation of L

Sources of Aggregate TFP Growth

Sources of Growth

GDP = Vppf(V1, … ,Vn) = f(K,L,Tppf)

GDP = f(KIT, KnonIT, LCollege, LnonCol,Tppf)

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1960-1995 1995-2000 2000-2005

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Non-college Labor College Labor Non-IT Capital

IT Capital Aggregate TFP

Sources of U.S. Economic Growth

Table 6.8 Labor Characteristics by Industry, 2005

Compen-sation

Hours wk. Aged 16-35

Hours wk. Females

Females; college ed

Males; college ed

($/hour) (%) (%) (%) (%)IT Producing

16 Computers & Office Eq 39.7 32 30 48 6320 Communications equip 46.3 29 31 39 5721 Electronic Components 41.2 31 34 29 5466 Computer services 51.0 42 29 58 66

IT Using53 Wholesale trade 36.2 31 26 26 2758 Nondepos inst; brokers 80.9 39 47 38 66

nonIT industries9 Construction 26.1 37 8 19 10

73 Hospitals, private 25.1 28 75 38 47

85 Industry Median 35.4 29 32 26 26

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1960-1995 1995-2000 2000-2005

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(%

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non-IT IT using IT producing

Industry Contributions to Growth of College-educated Labor

Figure 6.9: Compensation by age relative to 25-34 year olds

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1.0

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1977 1980 1983 1986 1989 1992 1995 1998

35-44

45-54

55-65

55-64

45-54

35-44

December 23, 2000 issue

Figure 6.9: Compensation by age relative to 25-34 year olds

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1977 1981 1985 1989 1993 1997 2001 2005

35-44

45-54

55-65

45-54

55-64

35-44

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1960-1995 1995-2000 2000-2005

An

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(%

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non-IT IT using IT producing

Industry Contributions to Growth of IT Capital Input

Next step:

Growth accounting with NAICS