Productivity and Information Technology

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The introduction, in 1975, of the Altair computer initiated the age of personal computing. The first Apple machine arrived in 1976, with the IBM PC following in 1981. These early machines provided the ability to put processing power on an individual's work desk, decreasing the need for expensive time-share connections, increasing end user capabilities, and improving end user effectiveness and efficiency. Businesses began investing increasing amounts of time and money in computing technology, highlighting the increased importance that computing technology is playing in the workplace (Kominski & Newberger, 1999). In 1981, industrial expenditures on IT amounted to $64 billion. By 1991, IT investment increased to $144 billion, and by 1999, IT expenditures had reached $390 billion (B.E.A., 1999).

The purpose of this investment in computing technology has been to improve workplace productivity. However, given the ever-increasing investment in technology, the anticipated productivity enhancement has not been observed. As evidenced by the Bureau of Labor Statistics figures, productivity gains in the 1980s and 1990s, as measured by the percentage change of output per hour of non-farm businesses, have not kept pace with their historical gains (B.L.S., 1999).

Non-farm Businesses %∆ in Output/hr
1950s	1960s	1970s	1980s	1990s
2.8%	2.9%	1.9%	1.2%	1.7%

Roach (1987) questioned this apparent paradox of technology investment for corporate productivity, one of the main arguments for the investment. His research found no relationship between investment in technology and corporate productivity. Several other authors have also delved into the so-called "Productivity Paradox," as it has come to be called. Work by Cron & Sobol (1983), Mahmood & Mann (1993) and others failed to provide results that could lead to a consensus.

Recently, however, there has been a shift identifying that information technology investment positively impacts corporate productivity. Brynjolfson & Hitt were one of the first to identify a positive impact on corporate productivity in 1993. The importance of technology-based productivity improvement has been further corroborated by Federal Reserve Chairman Alan Greenspan (McGee, 2000). Further, work by Whelan (2000), Tevlin & Whelan (2000) and Oliner & Sichel (2000) provide additional support identifying the impact of information technology (IT) on the aggregate output.

Brynjolfson & Hitt isolate computer capital and information systems staff labor as the IT components for their model (Brynjolfson & Hitt, 1993). Oliner & Sichel break down the IT contributions to growth as: computer hardware, computer software and communication equipment. However, their model, "… does not model the underlying technical improvements …" (Oliner & Sichel, 2000). Instead they focus on the "use" of information technology and the production of computers and semiconductors.

Brynjolfson & Hitt point out several measurement issues ranging from limited availability of industry-level data to the imprecision of firm-level data (Brynjolfsson & Hitt, 1996). Additionally, difficulty in isolating or distinguishing the contribution of IT from other sources at the firm level further complicates the higher order statistics traditionally used by IT productivity researchers.

The measurement problem becomes more difficult as the level of inspection continues down to the individual user or individual machine. The ability to capture and measure the improvements at this level require, given the rapidity of the advances and the broad scope of their influence (processors, hard drives, disk drives, etc.) a Herculean and expensive effort. However, it is the improvements in technology at this level that are the driver "…that have helped to spur the accumulation of capital…," as stated by Oliner & Siechel (2000).

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