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Semiconductor and computer makers achieved remarkable productivity gains in the late 1990s, providing increasingly capable computers to businesses and consumers at ever lower prices. That manufacturing performance was so exceptional that it boosted the growth of national productivity substantially. Looking forward, many observers wonder whether the semiconductor and computer industries will continue to help productivity increase as rapidly as they have in the recent past. This Congressional Budget Office (CBO) paper--prepared at the request of the Senate Budget Committee--reviews the recent productivity growth in the economy, its relationship to improvements in computer technology, and the prospects for such growth and improvements in the future. In keeping with CBO's mandate to provide objective, impartial analysis, this report makes no recommendations.

Nathan Musick and Philip Webre of CBO's Microeconomic and Financial Studies Division prepared the paper under the supervision of Roger Hitchner and David Moore. The paper benefited from comments from Ana Aizcorbe and Dan Sichel of the Board of Governors of the Federal Reserve System, Robert Doering of Texas Instruments, Dale Jorgenson of Harvard University, and Jack Triplett of the Brookings Institution. Within CBO, Bob Arnold, Arlene Holen, Kim Kowalewski, Deborah Lucas, and John Peterson provided useful comments. Bob Arnold also provided productivity estimates. Kathryn Winstead helped with the figures.

John Skeen edited the manuscript, and Christine Bogusz proofread it. Angela Z. McCollough prepared the paper for publication, and Annette Kalicki produced the electronic versions for CBO's Web site (www.cbo.gov).
 

Dan L. Crippen
Director
May 2002
 
 

SUMMARY

I - INTRODUCTION

II - MEASURING POTENTIAL TOTAL FACTOR PRODUCTIVITY

• The Basics of Growth Accounting
• The Contribution of Computer Hardware Manufacturing to the Acceleration of Total Factor Productivity Growth in the Late 1990s
• The Accuracy of Growth-Accounting Results Amid Economic and Technological Change

III - PRICES OF COMPUTERS AND COMPONENTS

• The Technology Trajectory and Market Swings
• The Impact of Decreases in Component Prices on Computer Prices in the Late 1990s
• Trends in the Manufacture of Computer Systems

IV - THE TECHNOLOGICAL OUTLOOK AND ITS IMPLICATIONS FOR THE NEXT DECADE

• Technological Trends for Integrated Circuits
• Technological Trends for Disk Drives
• Future Trends in the Demand for Computers
• Implications for Total Factor Productivity Growth

APPENDIX A: HEDONIC PRICE ESTIMATION
 

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