While raising the specter of the productivity boom of the 1990s, when the large-scale use of personal computers and the internet revolutionized many industries and brought significant efficiency gains, we are observing a different transformational trend today due to remote working and AI technologies.

One particularly prominent debate questions the consequences of remote working on productivity. While some – who have noticed greater flexibility and a better general situation among the working population – will see it as a positive outcome, others may still doubt the efficiency of remote working in terms of higher, though usually less apparent, productivity. Nevertheless, the potential of AI to enhance human capabilities provides some prospects for higher productivity growth in the coming years.

Logistical improvements, including the rise of online shopping and efficiencies in supply chains, were part of the productivity boom of the 1990s. The growth of entrepreneurship and small-business start-ups, evident today, is pushing innovation and productivity in some sectors.

Further, falling inflation and a strong labor market remind us of the conditions that led to productivity growth a generation past. Workers have bargaining power; companies must create efficiencies and innovations to maintain their margins.

Nevertheless, despite these similarities, the Federal Reserve chair Jerome H Powell is nervous about calling the recent surge in productivity a new boom. As with the 1990s, it might take a little time for economists to understand the extent of the current productivity bust fully.

As we embark on this adventure without a map, it’s helpful to look back to the lessons from history. It’s what the next generation of policymakers will do as they toe the line between sustaining growth and worrying about bubbles.

After all, whether the onrush of 1994 is the beginning of a productivity renaissance is still an open question. But this much with some clarity: 1994 should stand as a reminder of the titanic effect that heightened productivity can have on the economy.

Source: Jeanna Smialek, The New York Times February 21, 2024