There are reasons to think that the standard productivity figures substantially underestimate the real increase in productivity. The productivity figures, averaged across all economic activity, include productivity in the services sector, which economists have argued tends to be underestimated because of dificulties of measurement (Griliches 1992).5 As the US economy matured, there was a shift in the labor force, first from agriculture to industry and subsequently from industry to services.6 The proportion of the workforce employed in the service sector jumped from 38 percent in 1900, to 78 percent in 1999 (Fisk 2001). As the proportion of the population employed in the service sector increased over time, services took on relatively more weight in overall productivity calculations. If service sector productivity is systematically underestimated, and the service economy grew relative to other sectors as the economy developed, then it is probable that the true magnitude of the improvement in productivity over the course of the twentieth century is significantly greater than the oficial statistics suggest.
In addition, the standard productivity calculation fails to take into account suficiently the additional value generated by the creation of entirely new kinds of product. When new consumer goods get invented—things like personal computers and mobile phones—sources of utility come into existence that did not previously exist. Because national income accountants have dificulty valuing this added utility, it does not get registered in standard measures of changing productivity. Economist Bradford DeLong (2002) has come up with a very rough estimate for the added value of new products, suggesting that with this added value taken into account productivity in fact increased by between 14 and 25 times over the course of the twentieth century.7 It is not unreasonable, therefore, to conclude that the standard measures of labor and multifactor productivity should be regarded as providing a bare minimum estimate of changes in productivity. The real figures are likely to be higher, quite probably much higher.
In sum, there is little doubt that between the later nineteenth and early twentieth centuries, the economy of the United States, along with every other economy in the industrial world, experienced dramatic growth in productivity. The fact that per capita economic growth and improving productivity tended to move in tandem indicates that productivity improvements were predominantly used to increase aggregate output.
Empirical Pattern in the United States
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