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Prices of high-tech products, mismeasurement, and the pace of innovation

Prices of high-tech products, mismeasurement, and the pace of innovation Abstract Introduction Two recent papers have made compelling cases that mismeasurement of prices of high-tech products cannot explain the slow pace of labor productivity growth that has prevailed since the mid-2000s. Does that result indicate that mismeasurement of high-tech products has limited implications for patterns of economic growth? The answer in this paper is “no.”. Results We demonstrate that the understatement of price declines for high-tech products in official measures has a dramatic effect on the pattern of multifactor productivity (MFP) growth across sectors. In particular, we show that correcting this mismeasurement implies faster MFP growth in high-tech sectors and slower MFP advance outside the high-tech sector. If MFP growth is taken as a rough proxy for the pace of innovation, our results suggest that innovation in the tech sector has been more rapid than the rate that would be inferred from official statistics (and less rapid outside high-tech). Conclusion These results deepen the productivity puzzle. If the pace of innovation in high-tech sectors has been more rapid than indicated by official statistics, then it is perhaps even more puzzling that overall labor productivity growth has been so sluggish in recent years. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Business Economics Springer Journals

Prices of high-tech products, mismeasurement, and the pace of innovation

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Publisher
Springer Journals
Copyright
2017 National Association for Business Economics
ISSN
0007-666X
eISSN
1554-432X
DOI
10.1057/s11369-017-0034-4
Publisher site
See Article on Publisher Site

Abstract

Abstract Introduction Two recent papers have made compelling cases that mismeasurement of prices of high-tech products cannot explain the slow pace of labor productivity growth that has prevailed since the mid-2000s. Does that result indicate that mismeasurement of high-tech products has limited implications for patterns of economic growth? The answer in this paper is “no.”. Results We demonstrate that the understatement of price declines for high-tech products in official measures has a dramatic effect on the pattern of multifactor productivity (MFP) growth across sectors. In particular, we show that correcting this mismeasurement implies faster MFP growth in high-tech sectors and slower MFP advance outside the high-tech sector. If MFP growth is taken as a rough proxy for the pace of innovation, our results suggest that innovation in the tech sector has been more rapid than the rate that would be inferred from official statistics (and less rapid outside high-tech). Conclusion These results deepen the productivity puzzle. If the pace of innovation in high-tech sectors has been more rapid than indicated by official statistics, then it is perhaps even more puzzling that overall labor productivity growth has been so sluggish in recent years.

Journal

Business EconomicsSpringer Journals

Published: Apr 1, 2017

References