Sunday, November 27, 2011

$20M investment per job created?

There's an ongoing debate about the causes of the slowdown in productivity of American workers, beginning some time around mid 1970-s. The chart below shows trend vs actual productivity since the post-WW|| recession. (the chart below is from an MIT Tech Review article - click to read.)

The IT productivity paradox is often cited as one of the major reasons.
The productivity paradox (also the Solow computer paradox) is the peculiar observation made in business process analysis that, as more investment is made in information technology, worker productivity may go down instead of up. Before investment in IT became widespread, the expected return on investment in terms of productivity was 3-4%. This average rate developed from the mechanization/automation of the farm and factory sectors. With IT though, the normal return on investment was only 1% from the 1970s to the early 1990s.
Recently, economist Tyler Cowen wrote a book on this topic - The Great Stagnation, which I'm in the process of reading. In the meantime, it's important to note that heavy IT investment does not create a lot of jobs. Here's how Apple's new datacenter looks like from a job creation perspective:
(Nov 24, 2011. Washington Post) - Just off Startown Road, on the edge of town, Apple recently completed a massive $1billion data center to help power its cloud computing products.
Total new full-time jobs running the facility: 50.
A trillion-dollar question would be, What kind of innovation creates local jobs? For some reason, I have this vague association between our times and the times of the 18th century agricultural revolution in England. On one hand, the revolution produced a breakthrough in food production; on the other, it displaced hundreds of thousands of peasants [and their children] who had to move to the cities in search of work. Where would all the displaced factory workers go now? Social networking?

tags: innovation, destruction, niche construction, trend, economics, system

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