(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)
The digital economy has contributed to 86 percent of U.S. labor productivity growth in recent years despite accounting for only 8.2 percent of GDP.
Source: Bart van Ark, Klaas de Vries, and Abdul Erumban, “Productivity and Innovation Competencies in the Midst of the Digital Transformation Age,” European Commission Fellowship Initiative Discussion Paper 119, October 2019.
Commentary: Labor productivity growth has slowed dramatically across the developed world in recent years. In the United States, it dropped to just 0.96 percent in the 10-year period from 2007 to 2017. That was down by more than half from 2.06 percent in the previous 10-year period. The European Union likewise saw its productivity growth decline by more than half from the first of those 10-year periods to the next—falling from 1.37 percent between 1996 and 2006 to 0.66 percent between 2007 and 2017.
But a new analysis that identifies the contribution different sectors have made to labor productivity growth finds that the digital economy has been a bright spot for the United States. In fact, between 2013 and 2017, it contributed the lion’s share of U.S. labor productivity growth (accounting for 0.49 percentage points of the total 0.57 percentage-point increase), despite representing only 8.2 percent of GDP. That wasn’t the case in the European Union, where the digital economy contributed 0.15 percentage points out of a total 0.87 percent growth over the same period.