Guest Contribution: “Can Technology Hurt Productivity?”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. This is an extended version of a column that appeared at Project Syndicate on March 19.

There are a variety of explanations for the declining growth rates in productivity and GDP that have been observed in recent years. The most prominent explanations involve technology. On the one hand, Robert Gordon (2016) has argued persuasively that we should not expect Information and Communications Technology (ICT) and other technological innovations of recent years to have as big an economic payoff as electricity, the automobile, and other technological revolutions of the past. On the other hand, Martin Feldstein (2017) has argued persuasively that productivity growth is higher than we realize, because government statistics “grossly understate the value of improvements in the quality of existing goods and services” and “don’t even try to measure the full contribution,” of new goods and services, and that these measurement errors are probably becoming more important over time.

Less attention has been given to another possibility: while ICT and other technological developments bring many heralded benefits, they have some less-heralded negative side-effects that may contribute to the slowdown in productivity and growth. At the risk of being thought a Luddite, I offer a partial list.

  • Disruptive innovation is disruptive. For example, the advantages of each new incarnation of computer software or hardware are partially offset by the hours that we have to spend learning how to use it. Glitches often bedevil the transitions.
  • Spam, viruses, and security breaches, impose big costs on businesses as well as households.
  • Employees spend part of each work day on non-work emails, social media, internet videos and videogames. “Technology is hi-jacking our minds and society,” says a group of Silicon Valley technologists.
  • Addictive videogames may undermine job skills and hours worked for some of the young. A recent study by Mark Aguiar and co-authors finds recreational computer activities partly explain a decline in labor supply by men ages 21 to 30. Now entering the job market is a generation that has been shaped by the smart phone.
  • Even the productivity gains from such widely hyped innovations as tele-commuting have been brought into question. Research turns out to show that laptops in the classroom slow student learning, even when used to take notes rather than surf the web.
  • At the risk of angering Bitcoin enthusiasts: digital currencies have not in fact proven to be more efficient as a means of payment or store of value than conventional money, as I understand it. To the contrary, they encourage the diversion of resources away from productive uses. Adding insult (social cost) to injury (waste of resources), the energy intensity of the “mining” is bad for the environment and the anonymity of their use is bad for law enforcement.
  • I find it hard to forebear expanding into things that merely undermine quality of life even if they don’t show up in the productivity statistics. Have you stopped answering your phone due to the proliferation of robocalls?
  • How about the dangers of texting while driving? In the United States, the National Highway Traffic Safety Administration reports that 3,477 people were killed and 391,000 were injured in motor vehicle crashes involving distracted drivers in 2015, with texting being the biggest culprit, particularly among young people.
  • And the big one: Does anyone still think that the replacement of old media with new media has unambiguously improved the clarity of the public exchange of information and the quality of the democratic political process? False news has been found to spread faster on Twitter than true news. The problem is so intractable that President Trump has been able to subvert the usefulness of the phrase “fake news” just by applying it to all real news that he doesn’t like.
  • Those are just negative side effects of information technology. A list of other technological innovations with big obvious downsides would include opiates, advanced weaponry, and more.

To be clear, I am not suggesting that the net effects of recent technological advances are negative. Many have had huge positive effects. Also, historians such as Paul David and technology experts such as Erik Brynjolfsson, Daniel Rock, and Chad Syverson argue persuasively that there has always been a substantial lag between the time of a major new breakthrough (like the steam engine, electricity or the automobile) and the time when it yields net economic gains, because firms, buildings, and infrastructure need to be re-configured to take full advantage of the technology. Presumably the same will happen with recent technologies.

Still, some innovations have negative side-effects, for productivity and for society, and these should not be ignored.

This post written by Jeffrey Frankel.

29 thoughts on “Guest Contribution: “Can Technology Hurt Productivity?”

  1. 2slugbaits

    There seems to be two slightly different meanings of the word “technology” going on here. Some of the examples used in Prof. Frankel’s post might be better described as capital. For example, while I am inclined to agree with him that laptops in the classroom hurt student performnce, I would also tend to consider laptops used to take notes as a kind of student owned piece of capital. I also see videogames and mobile phones more as capital than technology. Yes, there’s a lot of technology embedded within those devices, but the devices themselves I see as capital. My understanding of technology is the actual knowledge of how to make labor more productive (if Harrod neutral) or both capital and labor more productive (if Hicks neutral). For example, a physical computer is capital, but the knowledge to write useful computer code or is technology. The student’s laptop is a piece of capital, but knowing how to use Excel is a technology. Menzie’s physical copy of EViews is a piece of capital, but knowing how to organize data and run statistical tests using EViews is technology. I would restate Prof. Frankel’s main thesis in a slightly different way. Instead of saying that sometimes technology itself can be bad, I would say that smart devices and capital can have the unintended consequence of trading between technology (i.e., knowledge) and capital (e.g., the physical device itself). In other words, capital that is embedded with high technology can make labor dumber.

  2. PeakTrader

    Martin Feldstein has a point, compare today’s economy to the economy of the 1970s — the environment is much cleaner, we’re using computers instead of typewriters, iPhones instead of landlines, driving much better cars than a Pinto, Vega, Gremlin, etc., prices of many goods are lower with much higher quality — you can buy a new microwave for $50 that’s lighter, more durable, and has more features. Watch an episode of Kojak and compare office buildings, for example, etc.. Quality improvements during the 1970s may have overstated GDP growth, but since then, they may have understated GDP growth. Of course, there’s more information and knowledge today, where people spend a lot of time, but at least they’re spending much less time on housework, e.g. cooking and cleaning, thanks to more and better appliances and division of labor.

    However, a third of the workforce and many others receive too little income to benefit much, although work environments are better and safer. We need to raise the national minimum wage, not only to reduce income inequality, but more importantly to attract more people into the workforce. Of course, state and city minimum wages would be better, giving differences in costs of living.

    1. PeakTrader

      Also, I stated before:

      I would promote work through less entitlement spending. For example, Social Security benefits starting at 68 with a minimum $1,500 a month and freezing any cost of living increases for several years, if individuals are expected to receive over $2,000 a month.

      1. pgl

        “I would promote work through less entitlement spending.”

        You would screw grandpa out of retirement benefits who has paid into this Social Security system all his working career so he would have to work at Wal Mart as a greeter just to pay the rent. Yep – you are even lower than the scumbag known as Paul Ryan.

        1. PeakTrader

          Your Grandpa will likely get a bigger Social Security check when he’s 68. Until then, he’ll add value to society, something you should learn about.

          I’m sure, you’d rather have a lawyer get him disability benefits at 50, although he can still work. Talk about a “scumbag” grandson. You do your Grandpa and society no favors.

          1. pgl

            How does your grandpa feel about having a grandson write all this gibberish? I’m sure he is quite disappointed.

    2. PeakTrader

      Also, I would add to JF’s summary that technology has caused laziness. When work was more physical, you didn’t need a gym membership to get into shape. And, work causes many fewer injuries today.

      I recall, delivering produce after high school. I picked up a box of watermelons that weighed about 70 pounds and my fingers got caught between the box and the wall of the truck. I called my boss and said “I think, I broke my finger.” He said “Is it crooked?” I said “No.” He said “You can keep working.”

  3. Moses Herzog

    I’d like to dedicate this song to the officials/referees of the Villanova vs West Virginia basketball game Friday night. Who during the beginning of the 2nd half had called 10 fouls on West Virginia and 1 foul on Villanova.

    From John Smallwood of the Philadelphia Enquirer:

    “With just under 13 ½ minutes remaining in Villanova’s 90-78 victory, the Mountaineers had already been whistled for seven team fouls – putting the Wildcats in the bonus – and one member of the starting backcourt, Daxter Miles, had four fouls and the other member, Jevon Carter, had three.”

    For whatever it’s worth, West Virginia also had more rebounds during the game than Villanova and less turnovers. But hey, the NCAA can’t have teams from poor regions of the country because they can’t sell merchandise or rake in those higher TV ad rates—-so congrats to the officiating crew for forcing the result the NCAA leadership wanted. Congratulations—your bonus check from Mark Emmert is in the mail as we speak.

    1. 2slugbaits

      As I mentioned before, I quit watching men’s college basketball games because the whole racket is just way too corrupt to enjoy the game anymore. Might as well start having the Russian and East German judges do the officiating. So I’ll take your word for it that the officiating sucked. And it’s been clear for a long time that the NCAA works its invisible hand to ensure big television market teams go deep into the tournament. But just to keep things on the topic of Prof. Frankel’s post on technology, sports is another area in which the benefits of technology are unclear. I really like the strikeout box they show in baseball games. So that’s a plus in my book. It’s not clear to me why we even need home plate umpires calling balls and strikes. This seems like something that technology can do a lot better. OTOH, the instant replay technology has been a real loser in most of the major sports. Replays rarely seem to settle close plays and all too often the officials still manage to get it wrong. And replays lengthen the game time…and lengthen the game…and lengthen the game. How often does a particular cameral angle support one referee call while another camera angle supports the reverse call? Way too often. I can only take so much of Joe Buck or Jon Gruden.

      1. Moses Herzog

        @ 2Slugbaits
        We already understand each other pretty well on this (and actually have near parallel views), but just to be certain, my argument was never against what you had said as it relates to NCAA men’s sports. I agree 100%. My issue with what you had said was that the women’s game was any better in terms of ethics or money-grubbing. I gave the obvious example of the Baylor women’s coach rationalizing systemically nurtured gangr*pe by Baylor’s football team at center court (of what I assume was a post-game talk). That doesn’t happen in a “vacuum” and what’s worse is, Mulkey very well knows it doesn’t happen in a “vacuum”. It wouldn’t take me long to find other dirty things in the women’s game, that was just an extreme example to make a point. If money was swirling around the women’s game, I doubt it would take them 6 months time to “play catch up” in the seediness and disgustingness department, as Kim Mulkey leaves little doubt.

        These things are a nutshell of an American society that generally no longer gives a crap about these things, they are not an “anomaly” or an aberration. If something like what happened at Louisville or Penn State had happened at a small 4-year state college—ESPN, Fox Sports and the rest of them would have driven the topic into the ground. When it happens at big eastern schools or powerhouse programs, less than 2 weeks later ESPN is saying “let’s move on, this is nothing folks”. When ZERO money is put into the NCAA enforcement it’s a clear flare gun signal to everyone “Do whatever the hell you want, NCAA hierarchy does not care”. Mark Emmet and the rest of those immoral sacks of crap, couldn’t make it any clearer.

  4. Steven Kopits

    Videogames, smartphones, social media: much more addictive and passive-making than appreciated, I think.

    Role of new media: I think this has undoubtedly brought stresses, but it has also greatly democratized information transmission and analysis. In essence, we have an open discussion with a Harvard professor on a Saturday afternoon. That’s pretty cool in its own right. Thus, I think information democratization is certainly full of stresses — but it is opening whole new universes.

    I think the rise of ideological ‘teams’ really hurts thinking. I have said that we are in a golden age for conservative policy. I can think of lots of new things to do, but I see very little creativity in politics or public policy. But you’re not going to do anything new if you’ve decided that you know the solution before you research the problem. And you’re not going to get there if you think out-of-the-box ideology is the answer.

    I think demographics is very important. Does democracy depend only on a middle class? Or does it depend on an economy growing at a certain speed? Anyone? Is there any economist out there with the gumption to tackle this issue? It’s central to our very civilization, but not worthy of serious examination.

    I think the elderly are putting a lot of drag on the economy. If we had a national balance sheet, we’d see all that healthcare spending has not made us wealthier at all. Again, why economists don’t feel a burning need for a national balance sheet is beyond me. Dead obvious, but not even worth discussing. Why not? Because it would call into question the efficacy of a lot of government spending.

    So, we seem to be stuck in a rut, but there are things to do.

    1. PeakTrader

      The middle class in the U.S. is shrinking – they’re moving into upper classes, while mostly poor immigrants move into the lower classes. However, in Western Europe, there’s still a large middle class, because of much less upward income mobility. Much of the lower class in the U.S. is being exploited, which is why we need a higher minimum wage.

      1. PeakTrader

        One argument against a minimum wage is it may cause a disincentive to learn a skill, since workers may be satisfied with the higher minimum wage. Nonetheless, people will want to learn a skill to make more money. With a higher minimum wage, they’ll have more money to afford learning a skill (rather than relying on student loans), or have more time to learn a skill more quickly. Anyway, everyone should be paid a subsistence wage for full-time work.

        1. Steven Kopits

          A meaningful minimum wage of say, $15 / hour, from my perspective is an apartheid type law. It will discriminate primarily against young black men with limited skills and relatively weak work ethic. It is a bad idea.

          On the other hand, one could bring in a minimum wage of $10 / hour without much effect. Actually very few people work at the $7.25 min wage level. Many work around $10 / hour. That’s not economics. It’s politics. But if you want to make a political gesture without meaningfully damaging the economy or the work prospects of the most vulnerable, a $10 / min wage would achieve that.

          I’d also add that with a market-based visa system, which is designed for full employment of migrants as a fundamental pillar of the concept, a high minimum wage would lead to higher levels of migrant unemployment in high minimum wage states. That is, if I am a migrant and can earn $10 / hour in Oklahoma full time or $15 / hour in California part time, I would accept a higher rate of unemployment in California. And in fact, that’s what we see. Despite a strong economy, California still has a high rate of unemployment even as people are moving out because the state is unaffordable (in part due to a shortage of migrant labor).

          1. PeakTrader

            Steven Kopits, the real minimum wage was $10 an hour in 1968. Since then, over the past 50 years, there have been productivity gains. Yet, the minimum wage is below $10 an hour. I think, the national minimum wage should be $13 an hour and higher in states and cities with higher costs of living. The (positive) income and multiplier effects may be greater than the (negative) employment effect.

            From the labor economics literature:

            “An alternate view of the labor market has low-wage labor markets characterized as monopsonistic competition wherein buyers (employers) have significantly more market power than do sellers (workers)…Such a case is a type of market failure and results in workers being paid less than their marginal value. Under the monopsonistic assumption, an appropriately set minimum wage could increase both wages and employment, with the optimal level being equal to the marginal productivity of labor.”

          2. PeakTrader

            It should be noted, raising the minimum wage, in itself, will increase productivity by attracting workers with higher reservation wages into the workforce and make existing workers more productive. It will also put less productive businesses out of business and more productive businesses will expand by capturing their market share.

          3. Steven Kopits

            In 1968, in 2017 dollars, the min wage was in fact $11.28. Clearly, someone felt this was too high, because it was allowed to decline to about $7.25 in real terms — just about what it is now. Indeed, in the last thirty years, the Federal minimum wage, CPI adjusted, has varied within $0.60 of the current level. During that time the percent of hourly workers earning the minimum wage or less has declined from 6.5% to probably under 2% today.

            See the graph:

          4. Steven Kopits

            If we look in terms of number of workers, it looks like this.

            There are about 155 million employed persons in the US. Of these, 80 million are hourly workers.

            Of all workers, about 2.2 million earn the Federal minimum wage or less.

            However, about 1 millon of these are under the age of 24, and half of those are age 19 or less.

            Only 882,000 full time workers earn minimum wage or less. And of these, 700,000 earn less than minimum wage, and if you check, the vast majority of these are in businesses with tips, ie, waiters.

            Only 183,000 workers work full time and earn minimum wage. Thus, the notion that there is some large cohort of adult, full time workers not in businesses with tips who earn the minimum wage is simply untrue. Only about 1 in every 1,000 employed persons in the US is both working full time and earning minimum wage without tips.

          5. PeakTrader

            In Southern California, for example, where the minimum wage should, perhaps, average $14 to $15 an hour, 37% of the workforce earns less than $13.63 an hour, which is defined as “Low Wage.”

          6. PeakTrader

            Low wage jobs are found in retail, hospitality, food service, warehouse, driving or delivery (that don’t compensate for wear and tear of your vehicle), landscaping, temp agencies, etc.. Starting wages are typically very low and don’t rise much. Even somewhat skilled jobs often start at $11 an hour. Moreover, benefits or compensation in low wage jobs has declined substantially, since the 1970s.

          7. PeakTrader

            Steven Kopits, markets don’t always work. There are market failures. And, there are many factors that influence an economy than just a higher minimum wage.

            Moreover, I see from your article, tourism is a big part of Puerto Rico and it faced lower wage competition from other Caribbean islands, e.g. the Bahamas and Jamaica, after a substantial minimum wage hike relative to its much lower per capita income than the U.S..

          8. PeakTrader

            It’s been shown, on a microeconomic level, higher wages, e.g. minimum or starting wages, have a positive effect.

            Costco 2013 article:

            “The no-frills warehouse chain, Costco, pays its hourly workers an average of just over $20 an hour, compared to just under $13 at competitor Wal-Mart.

            Sales at Costco have grown an average of 13% annually since 2009, while profits have risen 15%. Its stock price has more than doubled since 2009. During the same period, discount retailer Wal-Mart’s sales grew an average of 4.5% each year, profits rose 7%, and its stock price increased 70%.

            Cesar Martinez, a 37-year-old fork lift operator, has worked at a Costco in North Carolina for 19 years. He makes $22.82 an hour, gets health benefits and a pension plan. He manages to save, and doesn’t worry about hospital bills for his daughter, who suffers from asthma.

            “That’s the reason why I’ve been here for so long,” he said. “The company gives you a decent wage and treats you with respect and takes care of you. That’s why we all give 100%.”

            Research shows that it pays to pay employees well, because satisfied workers are more productive and motivated, according to MIT Sloan School of Management professor Zeynep Ton, who focuses on operations management.

            “How many times have you gone to a store, and the shelves are empty or the checkout line is too long, or employees are rude?,” she said. “At Costco, you see a huge line that disappears in minutes.”

            The productivity translates into sales, she said.

            According to Ton’s research, sales per employee at Costco were almost double those at Sam’s Club, its direct warehouse competitor owned by Wal-Mart.”

          9. PeakTrader

            Isn’t it better to earn roughly the same income each week, but work five hours a week less?

            I posted the following real life example before:

            There was a fast growing firm that was also very disorganized, because it was so busy. One of the recommendations was raising the starting wage from $11 to $13 an hour for all factory workers. However, management decided that was a bad idea. One reason was there were always plenty of applicants for $11 an hour, over the past few years, and of course, there was concern profits would fall, substantially.

            However, roughly six months later, management raised the starting wage to $13 an hour and something miraculous happened.

            Turnover rates dropped like a rock, overtime was almost completely eliminated, including six day weeks, injuries fell dramatically, hardly anyone called in sick, damage to equipment and products almost disappeared, including steep declines in reject rates, quality rocketed, morale was lifted, management no longer had to spend enormous time interviewing workers, with related paperwork and training, supervisors no longer had to cover for sick workers, to do their jobs, and had time to actually do their work, and profits increased substantially.

            Experienced workers who rejected the job when they learned it was $1 or $2 less than they were willing to work for took the jobs at the higher rate. Management had much more time to manage and supervisors had much more time to supervise. So, operations became much more organized and efficient.

    2. PeakTrader

      Rising riches: 1 in 5 in U.S. reaches affluence
      December 6, 2013

      “New research suggests that affluent Americans are more numerous than government data depict, encompassing 21% of working-age adults for at least a year by the time they turn 60. That proportion has more than doubled since 1979.

      Sometimes referred to by marketers as the “mass affluent,” the new rich make up roughly 25 million U.S. households and account for nearly 40% of total U.S. consumer spending.

      In 2012, the top 20% of U.S. households took home a record 51% of the nation’s income. The median income of this group is more than $150,000.”


      Growth in the
      Residential Segregation
      of Families by Income,

      “The proportion of families living in affluent neighborhoods doubled from 7 percent in 1970 to 14 percent in 2007.

      Likewise, the proportion of families in poor neighborhoods doubled from 8 percent to 17 percent over the same period.”

      My comment:

      In 1970, the proportion of Americans in the “affluent” and “upper income” classes, and also in the “low income” and “poor” classes were relatively small, while the proportion of Americans in the “high middle income” and “low middle income” classes were very large.

      If you break down those six classes into three classes, the high and low classes grew and the middle class shrunk. Those three categories are almost equal in size today.

      In 1970, both the high and low classes were about 18% each, while the middle class was over 60%. In 2007, both the high and low classes were about 30% each, while the middle class was over 40%.

      Many middle class Americans moved into the higher classes, while many immigrants from dirt poor countries moved to the U.S. and into the lower classes.

      Despite conventional wisdom, there has been tremendous upward income mobility in the U.S..

  5. Erik Poole

    Technology from before the information technology revolution– Automobiles, cheap fuel and grand highways — have created a society of passive ‘sitters’ so over 1/3 of all American adults are now obese. Many of them suffer from COPD.

    In fact there is a new buzz phrase in health: “Sitting is in the new tobacco”. Recall that tobacco is the deadliest, most destructive popular recreational drug in human history.

    Obesity, COPD and often co-associated diabetes are not conducive to higher worker productivity. Just the opposite.

    Americans have chosen to maintain the lowest excise taxes on gasoline and diesel among the rich OECD countries, to heavily subsidize the agricultural sector and to promote low density suburban development so this looming problem of epidemic proportions is a policy creation of American voting citizens, nobody else.

    1. PeakTrader

      It’s not so much cheap energy that made Americans obese. It’s fast food and abundance of technology that make work and home life easier. Cheap energy allowed Americans to live in much bigger houses than Europeans and Canadians, in the “burbs,” and allowed bigger cars, e.g. SUVs, trucks, and minivans.

      Of course, Americans want convenience, which the market provides. The U.S. is a consumer-driven economy that consumes much more than produces in the global economy, although it produces the most in the global economy.

      And, it’s not just smoking that’s bad for health, it’s alcohol, lack of exercise, eating improperly, prescription pain pills, illegal drug use, etc., beyond moderation, and a combination of those factors make it worse.

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