The past 15 years have been tough times for most Americans, but there are now encouraging signs of a turnaround.
Productivity growth, an integral driver for higher living standards, averaged just 1.3% because 2006, less than half the rate of the previous decade. However on June 3, the US Bureau of Labor Statistics reported that US labor productivity increased by 5.4% from the first quarter of 2021. What’s better, there’s reason to feel this is not just a blip, but instead a harbinger of better times ahead: a productivity surge which will match or exceed the boom times of this 1990s.
Annual Labor Productivity Growth, 2001 – 2021 Q1
Our optimism is grounded in our study that suggests that most OECD countries are only passing the lowest stage in a productivity J-curve. Driven by advances in electronic technology, such as artificial intelligence, productivity growth is currently headed up.
The productivity J-curve describes the historical pattern of initially slow growth growth after a breakthrough technology is introduced, followed later by a sharp takeoff. Our research and that of the others has discovered that technology alone is seldom sufficient to make significant added benefits. Rather, technology investments have to be combined with larger investments in new business procedures, abilities, and other kinds of intangible capital before breakthroughs as varied as the steam engine or machines ultimately boost productivity. For instance, after electricity was introduced to American factories, productivity has been stagnant for at least two decades. It was only after supervisors reinvented their manufacturing lines using dispersed machinery, a technique made possible by power, that productivity surged.
There are 3 reasons this time round the productivity J-curve is likely to be bigger and faster than previously.
The first is technological: the past decade has delivered an astounding cluster of tech breakthroughs. The most significant ones have been in AI: the development of machine learning algorithms combined with large decline in costs for data storage and advancements in computing power has enabled firms to address challenges from vision and speech to prediction and diagnosis. The fast-growing cloud computing marketplace has made these innovations accessible to smaller firms.
Significant innovations have also happened in biomedical sciences and vitality. In drug discovery and development, new technology have enabled researchers to optimize the design of new medications and predict the 3D structures of proteins. At precisely the same time, breakthrough vaccine technology using messenger RNA has introduced a revolutionary approach that could result in effective treatments for many other ailments . Moreover, major innovations have contributed to the steep decline in the price of solar energy and the abrupt growth in its energy conversion efficiency speed with severe consequences for the future of the energy sector in addition to for its environment.
The costs of covid-19 are tragic, but the pandemic has additionally compressed a decade’s worth of digital innovation in areas like distant work to less than annually. What is more, proof suggests that after the pandemic, an important fraction of work is going to be done remotely, while a new class of high-skill service workers, the digital nomads, is emerging.
As a result, the largest productivity impact of the pandemic will be realized from the longer-run. Even technology skeptics like Robert Gor