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By Bryan Bezold
Information Technology has come a long way since Nobel Laureate
economist Robert Solow said “Computers are everywhere except in
the productivity statistics.“ It is now widely acknowledged that
computer hardware,
software, and the Internet have changed business permanently,
lowering costs in many industries and creating some entirely new
industries. As with economic changes, the impact of information
technology (IT) adoption has created winners and some losers,
but overall has had large and beneficial affects on the U.S. and
St. Louis economies.
The adoption of IT across the economy is widely credited for the
strong economic expansion of the 1990s. IT adoption fostered non-inflationary
growth, because it allowed businesses to hire more workers and
produce more products and services without raising prices. IT
allowed firms to increase their payrolls without raising prices
because workers were able to produce more goods and services with
the new technologies. That meant that output and employment grew
across the economy, but prices didn’t rise rapidly.
It’s easy to mistake the IT driven boom of the 1990s with the
stock market bubble associated with Internet startups. The overvaluation
of those stocks and subsequent stock market correction was a separate
phenomenon from the broad productivity growth that the economy
experienced. Those who dismiss the growth during the ‘90s as a
“bubble” forget that the U.S. enjoyed strong employment growth
across a variety of industries. Between 1993 and 2000, the U.S.
economy created an average of 2.8 million jobs a year. That’s
the highest eight year average of any eight year period in the
post World War II era. So the economic boom of the 1990s was considerably
more substantial than the doomed Internet startups.
IT driven productivity growth enables firms to produce more goods
and services with the same number of workers, but the necessary
and obvious condition for that to happen is for growth in sales
to exceed the growth in productivity. IT driven productivity growth
allows businesses to produce more output with the same number
of workers, but can also allow businesses to produce the same
output with fewer workers. During recessions, the latter sometimes
takes place. For that reason, IT driven productivity growth may
be partially to blame for the poor performance of the job market
in the U.S. after the 2001 recession. On a monthly basis, U.S.
payrolls didn’t start to grow consistently until 30 months after
the 2001 recession started.
But now, payrolls are expanding in the U.S. and St. Louis, and
productivity growth remains relatively strong, at 3.7 percent
in the first quarter of 2006. Output grew at a rate of 5.2 percent.
Since output growth exceeded productivity growth, employers expanded
their payrolls, adding 529,000 jobs in the quarter. Overall productivity
increases related to IT are part of the picture of an expanding
economy, even though in an expanding economy, the benefits are
unevenly distributed across the workforce.
A recent paper by economists David Autor of MIT, Lawrence Katz
of Harvard, and Melissa Kearney of the Brookings Institution presents
an interesting explanation of the effects of technology on US
labor markets.1 They suggest that IT adoption increases the wages
and demand for some types of workers, but reduces the demand for
other types of workers. The authors present a model that breaks
workers down into three groups: those who work on abstract tasks,
those that work on routine tasks, and those who work on manual
tasks. Abstract workers would include college-educated professionals
who perform non-routine tasks that involve problem solving, while
routine workers work in either occupations that are repetitive
and are rule based rather than decision making. The third group
is composed of less skilled workers in manual labor oriented occupations.
Autor, Katz, & Kearney conclude that computer technology increases
the productivity of workers engaged in non-routine cognitive tasks,
which increases their wages and the demand for labor. Computer
technology replaces many workers engaged in routine tasks, however,
which reduces demand for their labor and their wages. IT neither
complements nor replaces manual labor. The net effect is more
rapid wage and employment growth in high skilled occupations filled
by college educated workers, and declines in employment in the
middle of the workforce. Demand for the least skilled workers,
primarily in manual occupations, increases, but is often filled
by workers displaced from other occupations causing mixed effects
of IT adoption of low wage occupations.
The bottom line appears to be that skilled, college educated workers
will benefit more from increased IT adoption by businesses, and
that less skilled workers will find fewer opportunities. That’s
an unpleasant reality for lower skilled workers, but it doesn’t
mean that we should abandon efforts to improve business productivity.
What it does imply is that workers need to be adaptable and skilled,
so that they can move from occupations replaced by IT to occupations
complemented by IT.
Given all that, how does IT affect the St. Louis economy? Most
directly, IT producing industries provide jobs and income for
St. Louisans. The table at (on page 45) shows the size of some
IT and IT related industries. Jobs in these industries pay significantly
more than the region-wide average for all industries of approximately
$38,000. Those high salaries support other jobs in the region.
In this case, the 40,744 jobs in IT related fields support another
approximately 47,600 jobs in other industries elsewhere in the
region.
Some of the IT related industries in the table, like architecture
and engineering and telecommunications, existed before the widespread
adoption of IT by businesses. But the other three industries in
the table are obviously fields that wouldn’t exist at all without
widespread adoption of PCs and mainframe computers.
St. Louis also has a lot of employment in industries that benefit
from IT adoption, specifically financial services and manufacturing.
Together, those two industries employ more than 200,000 St. Louisans.
Obviously, most of those workers aren’t what we’d call IT workers.
But manufacturing and finance have both been positively impacted
by IT adoption. Another such industry is the transportation &
distribution industry. Logistics and related industries employ
another 79,000 St. Louisans.
But there’s also the unavoidable truth that some workers aren’t
made more productive by new technologies, but are instead replaced
by them. It would be disingenuous to ignore that economic reality
while we discuss the benefits of these new technologies. That
reality is just as true in St. Louis as it is in the broader economy.
What’s also true is St. Louis has a smaller share of employment
in IT producing industries than a region its size should have.
The solution to both of those problems lies with education. The
workforce in our region needs to be adaptable and skilled. Surveys
undertaken by the RCGA showed that businesspeople outside of our
region view our workforce positively, and the share of adults
over 25 with a college degree is slightly higher in St. Louis
than the national average. In order to grow our share of the IT
pie, so to speak, the region needs to get better. It is good news
that the share of adults with a college degree in the region is
higher than the U.S. average, and better news that it appears
to be trending upward. On the other hand, that share is still
lower than many other metropolitan areas.
Increased adoption of IT will continue to benefit the U.S. and
St. Louis economies, but the regions and workers that benefit
most from those new technologies will be those that are most skilled
and adaptable.
Industry:
Architectural & Engineering Services
NAICS Code: 5413
Employment: 10,809
Number of Establishments: 982
Average Annual Pay: $56,356
Annual
Economic Impact
Indirect Employment: 8,400
Total Output Impact: $1,747,300,000
Industry:
Computer Systems Design & Related Services
NAICS Code: 5415
Employment: 11,570
Number of Establishments: 1,109
Average Annual Pay: $64,881
Annual
Economic Impact
Indirect Employment: 11,600
Total Output Impact: $2,307,200,000
Industry:
Internet Publishing & Broadcasting
NAICS Code: 516
Employment: 86
Number of Establishments: 19
Average Annual Pay: $48,694
Annual
Economic Impact
Indirect Employment: 300
Total Output Impact: $57,440,000
Industry:
Telecommunications
NAICS Code: 517
Employment: 12,222
Number of Establishments: 391
Average Annual Pay: $59,374
Annual
Economic Impact
Indirect Employment: 17,700
Total Output Impact: $5,487,440,000
Industry:
ISPs, Search Portals & Data Processing
NAICS Code: 518
Employment: 6,057
Number of Establishments: 212
Average Annual Pay: $65,633
Annual
Economic Impact
Indirect Employment: 9,600
Total Output Impact: $1,985,770,000
Total
Employment: 40,744
Number of Establishments: 2,713
Average Annual Pay: $61,045
Annual Economic Impact
Indirect Employment: 47,600
Total Output Impact: $11,585,150,000
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