Technological revolution and productivity decline: Computer introduction in the financial industry

In the computer revolution, as in the first technological transformation 200 years ago, it appears that experience gained over generations is required to obtain economic benefits from fundamental alterations to work processes.

Abstract

Productivity effects of the second technological revolution are evaluated in the initial large sector of the American economy to use the computer widely. Adoption by the financial industry has been associated with massive increases of fixed capital, but not with proportionate increases of output either in total or per unit of labor. As capital intensity grew without compensating benefits, capital productivity began a sharp decline which has continued for a quarter century. However, multivariate analysis demonstrates the beginning of improvement resulting from new technology. In the computer revolution, as in the first technological transformation 200 years ago, it appears that experience gained over generations is required to obtain economic benefits from fundamental alterations to work processes.