Prices of High-Tech Products, Mismeasurement, and Pace of Innovation

32 Pages Posted: 1 May 2017

See all articles by David M. Byrne

David M. Byrne

Board of Governors of the Federal Reserve System

Stephen D. Oliner

American Enterprise Institute

Daniel E. Sichel

Wellesley College; NBER

Date Written: April 2017

Abstract

Two recent papers have made compelling cases that mismeasurement of prices of high tech products cannot explain the slow pace of labor productivity growth that has prevailed since the mid-2000s. Does that result indicate that mismeasurement of high-tech products has limited implications for patterns of economic growth? The answer in this paper is “no.” We demonstrate that the understatement of price declines for high-tech products in official measures has a dramatic effect on the pattern of MFP growth across sectors. In particular, we show that correcting this mismeasurement implies faster MFP growth in high-tech sectors and slower MFP advance outside the high-tech sector. If MFP growth is taken as a rough proxy for the pace of innovation, our results suggest that innovation in the tech sector has been more rapid than the rate that would be inferred from official statistics (and less rapid outside high-tech). These results deepen the productivity puzzle. If the pace of innovation in high-tech sectors has been more rapid than indicated by official statistics, then it is perhaps even more puzzling that overall labor productivity growth has been so sluggish in recent years.

Suggested Citation

Byrne, David M. and Oliner, Stephen D. and Sichel, Daniel E., Prices of High-Tech Products, Mismeasurement, and Pace of Innovation (April 2017). NBER Working Paper No. w23369. Available at SSRN: https://ssrn.com/abstract=2961093

David M. Byrne (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Stephen D. Oliner

American Enterprise Institute ( email )

1150 17th Street, N.W.
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United States
2024195205 (Phone)

HOME PAGE: http://www.aei.org/scholar/stephen-d-oliner/

Daniel E. Sichel

Wellesley College ( email )

106 Central St.
Wellesley, MA 02181
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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