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Riding the IT wave: surging productivity growth in the West

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Riding the IT Wave: Surging Productivity Growth in the West U.S. productivity growth surged in the latter half of the 1990s after nearly two decades of lackluster gains. Several states in the West were among the leaders in this productivity growth surge, posting average annual increases well above the rest of the U.S. In the last Economic Letter (2002-33), Dan Wilson examined the District’s productivity per- formance advantage in terms of the level of output per worker.This Economic Letter documents the recent productivity performance in terms of growth rates and examines the sectors contributing to the West’s exceptional surge.The results show that, as in the nation, productivity growth in the District accelerated in most regions and sectors. In terms of outperforming the rest of the nation, however, much of the credit goes to the relatively rapid pro- ductivity growth in sectors related to information technology (IT). Productivity surge stronger in the District From 1995 to 2000, output per worker in the U.S. grew at an average annual rate of about 2.8%, well above the 1.5% per year pace recorded from 1973 to 1995. A large literature links this surge to improvements in producing and using IT goods and services (Oliner and Sichel 2002; Stiroh 2002). Less well-studied is the extraordinary surge of productivity growth in the West, where both the pace of growth and the acceleration in growth exceeded that of the rest of the nation. The magnitude of the West’s advantage is illustrated in Figure 1, which shows average annual growth in productivity (measured as real value-added per worker) in the Twelfth District and the rest of the nation from 1986-1994 and 1995-2000 (see Wilson 2002 for a detailed description of the measurement of regional productivity; 1986 is the first year in which these data are reliable).As the figure indicates, in the earlier period, productivity growth in the District about matched that in the nation. But from 1995 through 2000, productivity grew much faster in

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