Sectoral productivity in the United States: Recent developments and the role of IT

As the step-up in U.S. productivity growth in the mid-1990s became evident, research on productivity surged. Initially, the new work concentrated on estimating the contribution of information technology (IT) to the productivity pickup, with similar results obtained using industry-level or broad macroeconomic time-series data (Jorgenson and Stiroh 2000, Oliner and Sichel 2000, respectively). Later, studies exploited more detailed data and showed that, while multi-factor productivity (MFP) growth in the IT-producing industries was very high, many services industries also had substantial MFP growth in the late 1990s (Triplett and Bosworth 2004; Jorgenson, Ho, and Stiroh 2005a, 2005b). It is not surprising that disaggregate data were needed to establish that the resurgence in U.S. productivity growth in the late 1990s went beyond the production of IT and was based, at least in part, in increases in MFP growth in some services industries.291 Detailed analysis had previously documented that many services industries had flat or declining trends in labor productivity for twenty or more years before the pickup in the late 1990s became evident (Corrado and Slifman 1999). The discovery that the "use of IT" story was mostly a services phenomenon (Stiroh 1998, Triplett 1999) also required disaggregate data to determine which industries were investing in the newer technologies. In some sense, the well documented variability in the diffusion of new technology and innovation across ranges of products (Mansfield 1968, Gort and Klepper 1982) has long suggested that the available industry data should be studied to detect and identify changes in productivity. This paper presents key trends and developments in productivity growth at an intermediate level of aggregation in the United States, and shows links between the acceleration of MFP and IT. Six custom-made sectors were aggregated up from detailed disaggregated data using a framework that has some nice theoretical properties. Further, the six sectors were defined to provide a more meaningful view of productivity growth than can be found using standard industry hierarchies. The six sectors have highly divergent trends in MFP growth, a result that we believe, in itself, strongly suggests disaggregate data are extremely useful for determining the current trend in aggregate MFP. Similar to previous studies of sectoral productivity, we find that the U.S. productivity resurgence in the late 1990s was a sectoral story, with notable increases in the rate of change in MFP for some sectors partly offset by small step-downs in others. In terms of the sources of growth since 2000, our results show that productivity (MFP) has been the major contributor. We estimate that the rate of change in aggregate MFP picked up notably since 2000, and we now show that this was driven primarily by striking results for finance and business services. Although the major players in the productivity pickup in late 1990s - The tech sector and retail and wholesale trade - were not players in the acceleration since then, we estimate that the rate of MFP growth in these sectors continued to be robust. All told, using our newly developed NAICS-based dataset, we find that by 2004 the resurgence in productivity growth that started in the mid-1990s was relatively broad-based by major producing sector. The plan of this paper is as follows: The next section of this paper spells out our theoretical framework and reviews the basic elements in our system: measures for industrylevel growth accounting, measures of sectoral output and purchased inputs for aggregates of industries, and a structure for aggregating industries to sectors and to the total economy. We then present our results on developments and trends in sectoral productivity and on the role of IT.