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Explanations

Why does productivity tend to lag major technological advances?

Geoff Riley

25th July 2023

Robert Solow famously said that computers were everywhere, except in the productivity statistics. This Jonty Bloom article for BBC news is well worth a read not least because it quotes Diane Coyle and Nick Crafts, professors with an incredibly detailed understanding of the issue. This is an excellent read for students and teachers wanting deeper contextual background on one of the most important supply-side issues of the age.

The piece discusses an apparent lack of a relationship between technology and productivity - making the case that despite seemingly sizeable improvements in technology, productivity hasn't improved.

Certainly productivity, or rather the lack of it, is a problem that has dogged the UK economy for a long time, but this article also makes the point that the lack of productivity is a more general phenomenon. Many factors drive productivity growth and understanding what is in this particular black box is super-important for competitiveness and economic growth.

Labour productivity improvements can often lag behind advances in technology due to various reasons:

  1. Learning and adaptation time: When new technologies are introduced, there is a learning curve for workers and businesses to understand and fully utilize these technologies. It takes time to train employees, integrate the technology into existing processes, and optimize its use for maximum efficiency.
  2. Resistance to change: People may be resistant to adopting new technologies due to fear of job displacement (structural unemployment) and/or concerns about their ability to adapt. This resistance can slow down the implementation of advanced technologies and hinder productivity gains.
  3. Compatibility issues: New technologies may not always be compatible with existing systems and processes. Integrating them into the existing infrastructure can be time-consuming and complex, leading to delays in productivity improvements.
  4. Organizational and managerial challenges: The successful adoption of new technologies often requires changes in organizational structures, work processes, and managerial practices. This transformation can be challenging and may require significant effort to overcome resistance and inertia within the organization.
  5. Skills gaps: In some cases, the workforce may lack the necessary skills to effectively utilise new technologies. Up-skilling and training programs are essential to bridge this gap and enable employees to leverage technology for increased productivity.
  6. Complexity of technology: Highly advanced technologies can be complex and require specialized knowledge to operate. As a result, it may take time to develop a workforce with the expertise needed to make the most of these technologies.
  7. Market dynamics: Economic factors and market conditions can influence the willingness of companies to invest in new technologies. During economic downturns or periods of uncertainty, businesses may delay investments in productivity-enhancing technologies.

Overall, while technology can pave the way for productivity improvements, the actual realisation of these gains often requires a combination of time, effort, and effective management to overcome various barriers and challenges.

The productivity puzzle issue is raised in this snippet of a conversation between Richard Quest and Stephen King.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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