Computers, Productivity, and Growth: Explaining the Computer Productivity Paradox

With quality-adjusted investment in new computer equipment near $500 billion during the 1990s, U.S. firms have clearly embraced the computer. The problem, however, is that economy-wide productivity growth remains well below historic averages. This rise in computer investment coupled with slow growth in productivity is the "computer productivity paradox." Does this paradox mean that companies are failing to get a bang for their computer buck when it comes to productivity as the aggregate productivity figures indicate? This research moves beyond economywide data to offer a simple solution to the paradox. By distinguishing between the sector that produces computers and the sectors that use computers, The Conference Board shows that computers are indeed having an important impact on U.S. growth and productivity and that the massive investment in computers over the past twenty years has not been in vain. (8 pages)