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Automation, productivity, and innovation in information technology

Published online by Cambridge University Press:  15 February 2022

Unni Pillai
Unni Pillai*
Affiliation:
College of Nanoscale Science and Engineering, SUNY Polytechnic Institute, Albany, NY 12309, USA
*
Email: upillai@sunypoly.edu. Phone: 1 845 706 9955
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Abstract

The rate of innovation in Information Technology (IT) has slowed down over time. The slowdown is evident both in the data on quality-adjusted prices of computers, and performance of microprocessors used in computers. The model in this paper shows that an IT–labor elasticity of substitution that is greater than 1 can explain the slowdown. With an elasticity of substitution greater than 1, however, slowing innovation can result in sustained labor productivity and output growth. Sustained growth is possible because an IT–labor elasticity of substitution greater than 1 results in a continuously increasing share of IT in production costs, which counteracts the effect of slowing innovation on labor productivity and output growth. In this environment of slowing innovation, increasing IT share and sustained growth, employment can increase or decrease, depending on the values of the IT–labor elasticity of substitution and the price elasticity of demand for IT-enabled consumption goods.

Keywords

Information technologyautomationproductivityemployment
Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 4 , June 2023 , pp. 879 - 905
Copyright
© The Author(s), 2022. Published by Cambridge University Press

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Footnotes

*

I thank Dave Byrne, Charles Jones, Samuel Kortum, Dan Sichel, Chad Syverson, and Evsen Turkay for their valuable comments and suggestions.

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