The past 15 years have been difficult times for many Americans, but there are now encouraging signs of a transformation.
Productivity growth, the main driver of rising living standards, has averaged just 1.3% since 2006, less than half the rate of the previous decade. But on June 3, the US Bureau of Labor Statistics reported that labor productivity in the US 5.4% In the first quarter of 2021. What’s better, there is reason to believe that this is not just a moment, but a harbinger of better times to come: an increase in productivity that matches or exceeds the boom times of the 1990s.
Annual Labor Productivity Growth, 2001 – 2021 First Quarter
Our optimism stems from our research which indicates that most OECD countries pass the lowest point in the J . productivity curve. Driven by advances in digital technologies, such as artificial intelligence, productivity growth is now trending.
Productivity curve J describes the historical pattern of slow productivity growth at first after the introduction of advanced technology, followed years later by a sharp takeoff. Our research and that of others have found that technology alone is rarely enough to deliver significant benefits. Instead, technology investments must be combined with larger investments in new business processes, skills, and other types of intangible capital before breakthroughs as diverse as the steam engine or computers ultimately boost productivity. For example, after electricity was introduced to American factories, productivity stagnated for more than two decades. Only after managers reinvented their production lines with distributed machines, a technology made possible by electricity, did productivity rise.
There are three reasons why this time around the J-curve productivity is bigger and faster than it has been in the past.
The first is technical: The past decade has brought an amazing array of technological breakthroughs. Chief among them is AI: The development of machine learning algorithms along with the dramatic reduction in data storage prices and improvements in computing power have allowed companies to tackle challenges from vision and speech to prediction and diagnosis. The rapidly growing cloud computing market has made these innovations accessible to small businesses.