2.2.1The Productivity Paradox

At the origin of the productivity paradox is a long-standing expectation that computerization will enhance productivity. As Powell (2000) argued:

‘Personal computers were supposed to make our lives easier by allowing us to complete certain clerical tasks more easily and accurately, and maybe even save a little paper in the process by generating, distributing, and storing documents electronically’

Based on this premise, the heavy computerization that has occurred since the mid 1970s should have been accompanied by consequent productivity improvements. During the 1970s and the 1980s, skyrocketing investment in information technology figures were opposed to sluggish labor productivity growth. Hence, some researchers started to believe that computerization might not enhance productivity. Solow (1987) quipped “we can see computers everywhere but in the productivity figures.” This argument was then referred to as the “productivity paradox.” Indeed, Figure 2.5 shows that representing together IT capital and productivity trends exhibits a paradoxical relationship.

Figure 2.5The productivity paradox: Trends in Labor Productivity and IT Capital Stock, 1977-1997

As seen in Figure 2.5, the stock of IT capital increased tremendously over the period from 1977 to 1997, with an average annual growth rate of 9.25%. Meanwhile, labor productivity was relatively stagnant, with an average annual growth rate of 1.1%. This counter-intuitive fact is the core of the productivity paradox, which raised some important questions about the role of IT in economics. Many authors have attempted to explain the productivity paradox. The next chapter will report their main findings. Nevertheless, this presentation of the productivity paradox hides some important facts: the increase in IT capital was very unequal across industries. States also differ greatly in their stock of IT capital because of different industry mixes. Finally, beyond industrial and spatial differences in IT capital stock, IT growth seems to have paralleled the growth in income inequality. Understanding these issues is the object of the following section.