Are ICT Spillovers Driving the New Economy?

Some observers have raised the possibility that production spillovers and network effects associated with information and communications technology (ICT) are an important part of the "New Economy." Across U.S. manufacturing industries, however, ICT capital appears correlated with the acceleration of average labor productivity (ALP) growth as predicted by a standard production model, but not with total factor productivity (TFP) growth as these New Economy forces imply. Once one allows for productivity differences across industries, measured TFP growth is uncorrelated with all capital inputs, including ICT capital. This provides little evidence for a New Economy story of ICT-related spillovers or network effects driving TFP growth throughout U.S. manufacturing.     

Employment protection and high-tech aversion

Do institutional firing costs slow the diffusion of information and communications technology (ICT)? The paper develops a model in which, as the technology at a given plant drops behind the best practice, it optimally reduces its workforce. As a result, firing costs are particularly detrimental to profits in industries in which the rate of technical change is rapid—such as ICT—and countries with high firing costs specialize in industries in which technical change is sluggish. The paper suggests that industry composition is a new channel through which labor market regulation might impact macroeconomic aggregates.     

ICT-specific technological progress in the United Kingdom

This paper analyses the impact of rapid technological change in the information and communications technology (ICT) sector on economic growth in the United Kingdom. We find that technological progress specific to the ICT sector accounts for around 20–30% of long-run labor productivity growth. We demonstrate that a permanent increase in the growth rate of ICT-specific technological progress will increase the investment expenditure share of GDP but lower the aggregate depreciation rate, while an increase in the return to investment in ICT will increase both the expenditure share and the depreciation rate.     

ICT and Growth: The Role of Rates of Return and Capital Prices

We revisit the widely discussed contribution of investment in ICT to economic growth, focusing on differences in productivity and quality of ICT across countries and time. In a growth accounting approach, we look at the way rates of return and rates of asset price decline measure these aspects. Conducting a sensitivity analysis with data from the EU KLEMS database for the years 1990–2007, we introduce a constant rate of return and a constant rate of ICT price decline. Both alternative measurements somewhat downplay the role investment played relative to growth in multifactor productivity in the U.K. and the U.S. during 1995–2000. Moreover, we show that more than half of the ICT contribution to labor productivity growth results from changes in capital quality and composition rather than from quantity.     

Evaluating the effects of entry regulations and firing costs on international income differences

This paper analyzes the effects of entry regulations and firing costs on cross-country differences in income and productivity. We construct a general equilibrium industry-dynamics model and quantitatively evaluate it using the cross-country data on entry costs and firing costs. Entry costs lower overall productivity in an economy by keeping low-productivity establishments in operation and making the establishment size inefficiently large. Firing costs lower productivity by reducing the reallocation of labor from low-productivity establishments to high-productivity establishments. The linear regression of the data on the model prediction accounts for 27% of the cross-sectional variation in total factor productivity. Moving the level of entry costs and firing costs from the U.S. level to that of the average of low income countries (countries with a Gross National Income below 2% of the U.S. level) reduces TFP by 27% in the model without capital, and by 34% in the model with capital and capital adjustment costs.     

ICT AND EUROPE's PRODUCTIVITY PERFORMANCE: INDUSTRY-LEVEL GROWTH ACCOUNT COMPARISONS WITH THE UNITED STATES

In this paper we present a new industry-level database to analyze sources of growth in four major European countries: France, Germany, Netherlands and the United Kingdom (EU-4), in comparison with the United States for the period 1979–2000. Aggregate labor productivity growth is decomposed into industry-level contributions of labor quality, ICT and non-ICT capital deepening and TFP. A small set of service industries is mainly responsible for the acceleration in ICT capital deepening in both regions, but their contribution to growth is lower in the EU-4 than in the U.S. TFP in these ICT-intensive services accelerated in the U.S. in the 1990s, but not in Europe. In addition, widespread deceleration in non-ICT capital deepening in the EU-4 has led to a European labor productivity slowdown.     

Sources of the German Productivity Demise: Tracing the Effects of Industry-Level Information and Communication Technology Investment

Abstract. While the United States experienced two successive labor productivity surges in 1995 and 2000, Germany's productivity declined dramatically during the same period. We examine the sources of Germany's productivity demise using the ifo industry growth accounting database that provides detailed industry-level investment information. While much attention has focused on the reduction in German labor hours, our data show that information and communication technology (ICT) investment in Germany was deeply lacking in the mid-1990s as compared with the United States. The transition to the new economy mitigated the German productivity slowdown, but did not reverse it. After 2000, we find that a recovery in Non-ICT investment was offset by a widespread collapse in German total factor productivity. Over half of the German industries (accounting for almost 50 per cent of German output) experienced negative total factor productivity growth. This second major difference between the United States and German industry performance explains Germany's secular departure from the technological frontier.     

A directional analysis of Federal Reserve predictions of growth in unit labor costs and productivity

Existing evidence suggests that the Federal Reserve forecasts of inflation imply asymmetric loss, as the Fed has significantly over‐predicted inflation for the post‐Volcker period. Consistent with such evidence, we show that the Federal Reserve forecasts of growth in both unit labor costs and productivity, while directionally accurate for 1983–2003, imply asymmetric loss. That is, the forecasts of growth in unit labor costs are more (less) accurate in predicting the upward (downward) moves. The forecasts of growth in productivity, however, are less (more) accurate in predicting the upward (downward) moves. The interpretation of our findings may be that, in achieving long‐term price stability, the Fed is cautious not to incorrectly predict the upward (downward) moves in growth in unit labor costs (productivity).     

Asymmetric impacts of ICT and energy intensity on agricultural productivity: Evidence from Asia-Pacific region

In the contemporary times of rising food insecurity and malnutrition, the agricultural sector needs more attention. This study aims to investigate the asymmetric impacts of information and communication technologies (ICTs), energy intensity, urbanization, and inequality on agricultural productivity for 20 Asia-Pacific countries from 1990 to 2020. To investigate asymmetric impacts, the study employs the panel nonlinear autoregressive distributed lag (NARDL) model. The estimated results revealed that positive and negative shocks in ICT, energy intensity, and urbanization have asymmetric impacts on agricultural productivity in the long run, whereas symmetry is observed in short-run impacts. It is found that a 1% increase (decrease) in ICT and urbanization increases (decreases) agricultural productivity by 0.292% (0.662%) and 2.717% (2.759%), respectively, whereas a 1% increase (decrease) in energy intensity decreases (increases) agricultural productivity by 0.252% (0.216%) in the long run. Furthermore, the results of the Dumitrescu-Hurlin panel causality test point out the existence of bi-directional causality between agricultural productivity and the independent variables (ICT, energy intensity, urbanization, and inequality). Based on the findings, the study suggests that the Asia-Pacific countries should increase the application of ICT and use energy more efficiently in agriculture to boost agricultural productivity.     

The challenge to china’s enterprises from increasing labor costs: the product quality perspective

ABSTRACT

Using China Employer–Employee Survey data, this paper investigates the possible heterogeneous results of increasing labor costs of different firms. The paper finds that, unskilled labors have a higher wage growth rate than the skilled labor. Firms with higher product quality employ more skilled labor, and thus are less affected by the increasing labor costs. On the other hand, firms with higher product quality have less elastic demand, which makes it possible for them to increase their prices without demand decreasing. The conclusions are well supported by the data. Therefore, we should treat the challenge of increasing labor cost in a new way. The real challenge of increasing labor cost is greater for low-quality firms. The empirical results suggest that some of the low-quality firms should upgrade their quality to a higher level to offset their labor cost increase.

Abbreviations: CEES: China Employer-Employee Survey LP: Labor productivity LTP: Lewis turing point TFP: Total factor productivity     

ICTs: Do they contribute to increased carbon emissions?

There is much evidence that the deployment of information and communications technologies (ICTs) can improve economic productivity, reduce energy intensity and exert downward pressure on renewable energy costs. While significant insights have been revealed about each of these effects in isolation, literature has not established their combined implications for carbon emissions. This article uses the International Futures (IFs) integrated assessment system (www.ifs.du.edu) to explore the dynamic impacts of ICT on interacting global systems, including economic and energy systems, and resultant carbon emissions. First, it reviews the literature on the various impacts of ICT; next, it extracts relationships from previously existing quantitative studies on the subject; third, it explains the addition of these relationships to the IFs structure; fourth, it explores the implications of the acceleration of ICT penetration; finally, it frames a range of uncertainty around the analysis through scenarios. The authors argue that ICT can have a downward impact on overall carbon emissions across a 50-year time horizon. However, the net impact of ICT is limited, and if policy makers are concerned with substantial reductions in overall stocks of carbon in the atmosphere, our model shows that ICT promotion must be coupled a global price on carbon.     

INTERNATIONAL COMPARISONS OF LABOR COSTS IN MANUFACTURING

This paper presents a comparative study of the levels of unit labor costs in the manufacturing sectors of several countries. We begin by surveying earlier estimates of relative productivity and unit labor cost levels and evaluating the various methodologies that have been used in previous studies. Empirical estimates of relative unit labor costs, based on output levels that are translated at purchasing power parity exchange rates, are then presented and compared to earlier estimates. The results show that the relative levels of unit labor costs in the United States and abroad have fluctuated significantly in recent years, due largely to movements in nominal exchange rates. In 1988, unit labor costs in the United States were below the average level of other industrialized countries, but were significantly above the level in a representative newly industrialized country, Korea. Insofar as unit labor costs serve as an indicator of international competitiveness, these results imply that the competitiveness of the U.S. manufacturing sector had improved significantly since 1985, at least with respect to other major industrialized countries.     

Information and Communication Technology (ICT) and Singapore’s economic growth

Singapore’s remarkable success in economic development has been strongly associated with the country’s vigorous efforts to embrace the Information and Communication Technology (ICT) revolution to promote economic growth. This study provides a comprehensive investigation of the contributions of ICT to Singapore’s economic growth during the 1990–2008 period. It documents three key findings. First, there is a strong positive association between the intensity of ICT use and value-added and labor productivity growth at the sector level. Second, ICT investment contributed approximately 1 percentage point to Singapore’s GDP during 1990–2008, and its role in driving economic growth has become increasingly important over time. Third, the contribution of the ICT manufacturing sector to Singapore’s growth was notable, but it was on the decline and faced difficult restructuring challenges. This paper also provides valuable policy lessons and strategic insights for governments in both developed and developing countries that aspire to embrace ICT to promote economic growth.     

Information and Communication Technology as Technical Change in Matching and Production

In this paper, we integrate two workhorse models in economics: The monopolistic competition model of Dixit and Stiglitz and the search unemployment model of Pissarides. Information and communication technology (ICT) is interpreted as a (i) technical progress in the matching function of the Pissarides labor market search model, where it is increasing the probability of filling a vacancy, and (ii) technical change in the production function of the Dixit-Stiglitz goods market model where it is increasing fixed costs and decreasing variable costs. All effects together, modeled as a permanent once-and-for-all ICT and internet shock, increase the vacancy/unemployment ratio, decrease the long-run equilibrium unemployment rate, and increase wages.     

Labor market structure and offshoring

We consider a two‐country, two‐sector model in which a firm’s offshoring decision depends on labor market rigidities that impose additional costs on the firm. Firms endogenously choose their organizational form considering their productivity level and organizational costs. The costs generated by labor market frictions play a key role in determining the benefits of each organizational structure, and thus helps determine the conditions under which a firm decides to offshore. There are three different types of equilibria depending on the relative levels of the domestic and foreign labor market costs and the price of the intermediate input. In all equilibria, a relative rise in the domestic labor market cost increases the share of firms that offshore, while decreasing domestic integration. Furthermore, an economy with offshoring has a higher welfare level and a lower unemployment rate than it would under autarky.     

Estimating Labor Demand with Fixed Costs*

We consider a dynamic model in which firms decide whether or not to vary labor in the presence of fixed costs. By exploiting the first‐order condition for optimality, we derive a semireduced form in which firms' intertemporal employment is defined by a standard marginal productivity condition augmented by a forward‐looking term. We obtain a marginal productivity equilibrium relation that takes into account the future alternatives of adjustment or nonadjustment that firms face. We use the structural parameter from this condition to estimate the fixed cost within a discrete decision process. Fixed costs are about 15 months' labor cost.     

ICT spillovers and productivity in Canada: provincial and industry analysis

Research on the effect of information and communication technology (ICT) on productivity in developed countries is already extensive, but the spillover and time-varying effects of ICT investment across economic activities have been only minimally explored. This paper investigates the impacts of ICT and its spillovers on productivity in Canada, focusing on heterogeneity across provinces and industries over time. The panel data estimation model includes 10 provinces with diverse economic activities for the period 1990–2008, and the two-digit level industries for the period 1981–2008. The findings show that ICT has a positive impact on labour productivity, but the effects vary significantly across provinces, industries, and time. Specifically, while provinces with higher shares of manufacturing and services in their GDP have reaped the benefits of ICT investment, other provinces primarily dependent on natural resources and agriculture are lagging behind. The industry-level analysis also reveals that manufacturing and services industries have benefited from ICT investment much more than primary sector industries. The results further indicate that ICT investment in the USA, a major trading partner, has spilled over to some Canadian provinces and industries and that the overall ICT effects are stabilized in those ICT-intensive provinces and industries.     

ICTs and time-span in technical efficiency gains. A stochastic frontier approach over a panel of Italian manufacturing firms

In this paper, in contrast to much of the existing literature dealing with the impact of information and communication technologies (ICTs) on labour productivity, we assess the relationship between ICT investments and technical efficiency (TE) using a stochastic frontier approach. We utilize a large panel dataset of Italian manufacturing firms over the period 1995–2006 and confirm the findings of the previous work on ICT and productivity. In addition, we test to what extent ICT investments influence the gap between firms and the production frontier; that is, how adoption of ICT influences the narrowing of the said gap. We also test the duration of the effects of adopting ICT on technical efficiency. Finally, our results indicate that ICT returns on TE are influenced by certain firm characteristics, most of which idiosyncratic, such as management practices, labour organization, research and development.     

PRODUCTIVITY, WORKPLACE PERFORMANCE AND ICT: INDUSTRY AND FIRM-LEVEL EVIDENCE FOR EUROPE AND THE US

This paper considers the contribution of information and communications technology (ICT), to international productivity performance. It first uses an international industry data set and a growth accounting framework, to show that ICT has typically had a lower impact on productivity in Europe than in the US, although there is considerable variation within Europe. The paper also analyses the European situation in greater depth by examining micro‐economic data from Germany, Italy and the UK. While direct comparisons between the national findings are difficult, the results suggest that the UK experience with ICT has been closer to the US than other European countries.