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Tech Prices, Mismeasurement, and the Pace of Innovation

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1 Tech Prices, Mismeasurement, and the Pace of Innovation
Dan Sichel* Wellesley College and NBER 16 January 2017 Secular Stagnation and Growth Measurement Conference Banque de France *Based on joint work with Dave Byrne and Steve Oliner.

2 Summary Can mismeasurement of prices of high-tech products explain the U.S. labor productivity slowdown? No Does mismeasurement of tech prices matter? Yes  Faster growth rates of MFP and innovation in tech. Deepens Productivity Paradox 2.0 Raises possibility of faster growth in the future.

3 Why Did Productivity Growth Slow?
IT revolution over (Gordon, Fernald) Secular stagnation (Summers) Mismeasurement of “within” GDP Mismeasurement of “beyond” GDP

4 This paper: Focus on Mismeasurment “within” GDP
Compare standard growth accounting results with different prices of high-tech products: Official measures Alternative research series

5 Using the Standard Framework
Use Fernald’s basic data (SF Fed website) Business sector Output is average of GDP and GDI Add detail on types of capital Add decomposition of MFP by sector

6 How Much Bias in Tech Prices?
Recent papers highlight potential biases (Byrne & Corrado and Byrne, Oliner, & Sichel) Official and Alternative Research Prices Average Difference in Growth Rates (pct pts) Sector Measurement gap Source Semiconductors 13.6 Byrne, Oliner, & Sichel Computers 7.7 Byrne & Corrado Communication equipment 5.4 Software 6.8 These alternative research prices were used in Byrne, Fernald, & Reinsdorf.

7 Compare Results with Official and Alternative Research Tech Prices

8

9

10 For Labor Productivity …
Mismeasurement of tech prices: Slight changes But, does not change basic story

11 For MFP Growth … Alternative prices barely change MFP growth
Boost output growth but also capital deepening On net, effect on MFP growth is small But, do alternative prices matter for the allocation of MFP growth across sectors?

12 For MFP Growth … Compare MFP growth using official and alternative tech prices

13 MFP Detail by Industry Industries
IT hardware (computers, comm equip, semis) Software Other intellectual property All other industries Use “dual” with information on relative prices to estimate MFP growth by sector

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20 Alternative Tech Prices …
Imply faster pace of MFP growth in the tech sector Imply faster rate of innovation in the tech sector And slower pace of MFP growth and innovation elsewhere

21 If Innovation in Tech has continued to be rapid …
Deepens Productivity Paradox 2.0. Raises possibility of 2nd wave of labor productivity gains from digital economy

22 How big could 2nd wave be? Use recent trends in MFP and plug into multi-sector Solow growth model to estimate steady-state growth of labor productivity

23 Labor Productivity Growth (percent)
How big could 2nd wave be? Labor Productivity Growth (percent) Actual Current steady state Gap (pct pts) Official prices .7 1 ½ 3/4

24 Labor Productivity Growth (percent)
How big could 2nd wave be? Labor Productivity Growth (percent) Actual Current steady state Gap (pct pts) Official prices .7 1 ½ 3/4 Alternative research prices .9 2 ¼ 1 ¼ Gap larger with alternative research prices Raises possibility of faster growth in future

25 Conclusion Can mismeasurement of tech prices explain the slowdown in U.S. labor productivity growth? No

26 Conclusion Does mismeasurement of tech matter? Yes, for allocation of MFP growth across sectors Alternative measures of tech prices imply much faster pace of innovation in tech Deepens Productivity Paradox 2.0 Raises possiblity of faster growth ahead

27 Thanks!

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