Human capital is the key to the IT productivity paradox

Unlike previous analysis, we consider (i) possible externalities in the use of IT and (ii) IT and human capital interactions. Examining, hypothetically, the statistical consequences of erroneously disregarding (i) and (ii) we shed light on the small or negative growth effects found in early studies of the effects of IT on productivity growth, as well as the positive impacts reported more recently. Our empirical analysis uses a 14-industry panel for Swedish manufacturing 1986–95. We find that human capital developments made the average effect of IT essentially zero in 1986 and steadily increasing thereafter, and, also, generated large differences in growth effects across industries.

Introduction: The IT productivity paradox was formulated in response to the fact that the massive investments in information technology (IT) that started around 1980 did not seem to have any positive effects on productivity growth. In the words of Nobel laureate Robert Solow: ”You can see the computer age everywhere but in the productivity statistics.” [Solow (1987)]In recent years, the original focus on computers has been broadened to include also communication devices: the concept of IT has been extended to ICT, information and communication technology. In this paper, we account for the development of communications equipment. We have kept the term IT, however.

Author: Gudmundur Gunnarsson,Erik Mellanden,Eleni Savvidou

Source: Institute for Labour Market Policy Evaluation

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