The computer- and semiconductor-manufacturing industries are central to any inquiry into the reason for the acceleration of US productivity after 1995, since together they account for roughly one-quarter of the national productivity growth jump (0.3 out of 1.33 percentage points).1 Both sectors already had very high productivity levels and growth rates. Productivity growth in computer manufacturing accelerated from an annual rate of 27 percent (1987–95) to 60 percent (1995–99); in semiconductors, it rose to 66 percent, from 43 percent.
More powerful computers
Nearly all of the productivity acceleration in computer manufacturing stems from the industry's success in selling more powerful computers, a phenomenon reflected in labor productivity data, not higher prices, since powerful computers become cheaper as technology develops.2 More powerful computers resulted from technological advances in inputs, such as microprocessors, memory, and storage devices, and from the integration of new components, such as CD-ROMs and modems, rather than from operational changes undertaken by computer manufacturers. Even so, they were credited with much of the gain in productivity.
Productivity growth rates, though very high when measured by units per employee, accelerated only slightly after 1995. The improvement was due mainly to the simplification of computer architectures and...