NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

David Byrne, Stephen Oliner, Daniel Sichel

NBER Working Paper No. 23369
Issued in April 2017
NBER Program(s):   DAE   EFG   PR

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.

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Document Object Identifier (DOI): 10.3386/w23369

 
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