What's New About the New Economy?: IT, Economic Growth and Productivity

Barry Bosworth /scholars/bbosworth.htm, Senior Fellow, The Brookings Institution, and Jack Triplett /scholars/jtriplett.htm, Visiting Fellow, The Brookings Institution

Abstract

An unexpected surge in economic growth and productivity in the United States since 1995 has stimulated much discussion about a "new economy." This paper examines the effect of information and communication technology (IT) on economic growth and productivity. Contrary to views that have appeared in the press and elsewhere, we emphasize that the effect of IT on recent U.S. labor productivity growth is more like a continuation of past trends than any great departure, and that it is not unique to the U.S. An equally unexpected acceleration in multifactor productivity (MFP) is also a major contributor to the acceleration in U.S. labor productivity growth. Although available industry-level data cloud the behavior of IT users' MFP, we see no strong evidence that IT is the generator of U.S. MFP growth among users of IT. Finally, we contend that what is really different about the U.S. economy in the late 1990's is the behavior of its labor market, a factor that has been given too little consideration in the "new economy" explanation of the late '90's U.S. economic success story.

http://www.brookings.org/views/papers/bosworth/20001020.htm