When I wrote my first articles on the digital economy in 2016, many economists were writing about a “productivity puzzle.” Wage growth had been flat (in real terms) since 1970, productivity was at its lowest point since 1980, industry consolidation had been monotonically rising since 1990, and industry dynamism was near its lowest point since 1975 (as measured by new firm entry and exit rates).
Curious of what we may have learned in the last 3 years, I re-reviewed economic literature, policy papers, and investment recommendations to understand the impact of digital technologies on the economic growth of the United States. In recent years, economist have explored various supporting hypotheses, such as rising markups and market power (Gutierrez and Philippon, 2017; De Loecker, Eeckhout and Unger, 2018; Hall, 2018), the increasing profits of large firms (Barkai, 2017), declining labor market dynamism (Decker, Haltiwanger, Jarmin and Miranda, 2017), and declining wages and declining labor share (e.g. Autor, Dorn, Katz, Patterson, and Van Reenen, 2017). All said, the dynamics underlying the “productivity puzzle” are still prevalent and a continued area of research.
With that in mind, I led an inquiry to understand some of the more compelling explanations and/or challenges associated with these phenomena, namely that:
- “Superstar firms” may be the strongest indicator of these dynamics: differentiated execution and more successful IT application leads to dispersion in wage growth, with disproportionate impact on low-skill workers
- Through further automation, the divergence in economic outcomes will persist. The nature of automation and any associated job loss will be industry-specific
- Workforce development and reskilling remain important for creating a dynamic economy; however, ambiguity in credentialing and role definition make skill development outside of the firm a challenging task
In doing this review, I became increasingly confident that strengthening the US labor force is pressing for the general health and welfare of the economy, and each of these topics includes a review of the current policy levers. Inequality is present - as a result of poor dynamism (lack of firm exit, sluggish development of new skills, lower mobility) and insufficient policy support for those negatively affected by the aggregate gains.
At the same time, my goal in putting this together was to clarify my own thinking - and to present it in a way that can be challenged and deepened by others. I would be grateful to learn what may resonate (or differ) from your personal perspectives and work.