Technological breakthroughs and productivity growth

Abstract: This dissertation consists of four self-contained studies concentrating on the productivity development following major technological breakthroughs. All four studies are concerned with measurement issues of productivity. Three of the papers use a comparative historical perspective and primarily focus on some of the differences and similarities in productivity growth following each technological breakthrough. A fourth paper solely focuses on the ICT revolution and the problems associated with measuring productivity in the Swedish Radio, television and communication equipment (RTC) industry.Paper 1, Technological Breakthroughs and Productivity Growth (with Magnus Henrekson), examines productivity growth following three major technological breakthroughs: the steam power revolution, electrification and the ICT revolution. The distinction between sectors producing and sectors using the new technology is emphasized. A major finding for all breakthroughs is that there is a long lag from the time of the original invention until a substantial increase in the rate of productivity growth can be observed.There is also strong evidence of rapid price decreases for steam engines, electricity, electric motors and ICT products. However, there is no persuasive direct evidence that the steam engine producing industry and electric machinery had particularly high productivity growth rates. For the ICT revolution, the highest productivity growth rates are found in ICT-producing industries. It is argued that one explanation might be that hedonic price indexes are not used for the steam engine and the electric motor. Still, it is likely that the rate of technological development has been much more rapid during the ICT revolution as compared to any of the previous breakthroughs.In paper 2, Do Hedonic Price Indexes Change History? The Case of Electrification, I investigate whether hedonic price indexing would also have large effects on measured price and productivity during electrification. The hedonic methodology is used on historical data for electric motors in Sweden in 1900–35. The results show that PPI-deflated prices for electric motors decreased by 4.8 percent per year based on hedonic price indexes. This indicates that prices decreased considerably more for electric motors compared to total manufacturing.Annual labor productivity growth in Swedish electric machinery in 1919–29 becomes 12.1 percent if the hedonic deflators are used. Thus, there is strong evidence that productivity growth in the electric motor producing industry was very high during the 1920s. In contrast to Sweden, US annual labor productivity growth was only, according to current best estimates, 4.1 percent in electric machinery compared to 5.3 percent in manufacturing in 1919–29. However, hedonic price indexes were not used to calculate US productivity. Finally, it is shown that the price decreases for electric motors in the 1920s were not on par with the price decreases for ICT-equipment in the 1990s, even if hedonic indexing is used in both cases.Paper 3, Parallel Development? Productivity Growth Following Electrification and the ICT revolution, compares labor productivity growth and the contribution to labor productivity growth in Swedish manufacturing during electrification and the ICT revolution. The paper distinguishes between technology-producing, intensive and less intensive technology-using industries during these two technological breakthroughs.The results show that labor productivity growth and the overall contribution to labor productivity growth were considerably higher in technology-producing industries during the ICT revolution compared to electrification. For example, the relative contribution to labor productivity growth in manufacturing from the technology-producing industry was 3.4 percent in 1920–30 compared to 34.4 percent in 1993–2003. On the other hand, the relative contribution to aggregate labor productivity growth was considerably higher in intensive technology-using manufacturing industries during electrification. These findings have an important policy implication, namely that it is much more important how productivity is measured for ICT products in the 1990s than for electric motors in the 1920s.Paper 4, The Swedish ICT Miracle: Myth or Reality?, investigates productivity development in Sweden in the 1990s. The results show that much of the recorded Swedish surge in labor productivity was due to the spectacular growth of the Radio, television and communication equipment (RTC) industry. However, the productivity growth of the RTC industry is very sensitive to value added price deflators.Unlike Sweden, the US uses hedonic price indexes for semiconductors and microprocessors which are important intermediate inputs in the RTC industry. Estimates based on the US intermediate input price deflators for semiconductors and microprocessors suggest that the productivity growth of the Swedish RTC industry during the 1990s can be questioned. This implies that the productivity growth of total manufacturing has also been overestimated. The results for Sweden are also interesting for other countries such as Finland, Ireland and South Korea, where ICT-producing industries have contributed substantially to labor productivity growth