PRODUCTIVITY in the U.S. economy picked up in the mid-1990s after two decades of sluggish growth. Many studies have found that productivity growth in information technology (IT)-producing industries (computers and communications) accounted for a sizeable portion of the productivity improvements in the aggregate economy (see Jorgenson 2001; Oliner and Sichel 2000). The surge in productivity in IT-producing industries was accompanied by an increase in the rate at which quality-adjusted prices declined for semiconductor chips, which are intermediate components used in computers and communication devices. Among the numerous semiconductor chips used in the IT industry, the acceleration in price declines was most pronounced for microprocessor chips, which form the nerve centre of modern desktop and laptop computers (see Aizcorbe 2005). These findings suggest that an increase in the rate of technological progress in the microprocessor industry might have driven down the quality-adjusted prices of microprocessors and of the upstream computer and communication products and thus played a central role in the pickup of aggregate productivity.
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