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Silicon Valley Economists Claim the Productivity Formula is Obsolete

Last update on April 14, 2016.

Productivity Productivity plummeted in the first quarter of 2015. The general fear among economists is that as the productivity stats fall, labor costs for major corporations will increase while profits decrease. This could start a chain reaction and ravage the already-suffering U.S. economy.

However, the technology economists from Silicon Valley, including Google Inc. chief economist Hal Varian, claim the productivity formula is obsolete. According to them, there are several reasons for this:

Lack of Measurement

Most new technologies, such as software apps and gadgets, are free or nearly free. Many of these apps increase productivity for their users in several ways. However, being that those services are free, they are not factored into the productivity equation.

Productivity Based on GDP

Gross Domestic Product (GDP) was rolled out nearly 80 years ago. The marketplace, and the entire world, weren’t based on digital goods and services. Tangibles were the name of the game back then. Steel and other raw materials made calculating quality and production improvements easy. Digital goods and services that improve efficiency (and ultimately productivity) are largely unmeasured.

Technology Innovations Take Time

New technology that increases productivity and efficiency require substantial time and resource investment from the corporations themselves, as well as venture capitalists. There is a gap between the moment a technology company creates a prototype for a new product or service (Point A), and the moment that product or service shows up into a salable product (Point B). That product or service is ONLY included in the U.S. productivity equation once it reaches Point B. Innovations like the Driverless Car technology spend way more time in that gap than a new iPhone.

The U.S. productivity equation has been around a long time but the folks at Silicon Valley consider it largely irrelevant. If you were to immerse yourself in the rapidly developing environment there, the last word you would use to describe it would be “unproductive.”


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