U.S. Productivity is Rising, but AI Doesn't Seem the Reason

U.S. productivity has been rising for several years, but artificial intelligence is probably not the reason, at least, not yet. 

According to a report published by the Federal Reserve Bank of San Francisco, the U.S. economy expanded at a relatively steady pace of around 2.5 percent per year over the past three years, even though employment growth slowed to near zero. 

Almost by definition, higher output with the same input means higher productivity. But it is not clear artificial intelligence has much to do with the increases.

A survey of nearly 6,000 senior business executives in the United States, United Kingdom, Germany and Australia published by the National Bureau of Economic Research found:

• 69 percent of firms actively use AI

• 66 percent of executives regularly use AI

• Average use is about 1.5 hours a week

• 90 percent of executives report little own-firm impact of AI over the last three years

• 90 percent report no impact on employment or productivity

• Over the next three years, respondents predict that AI will boost productivity at their firms by an average of 1.4 percent

• Will raise output 0.8 percent

• Cut employment 0.7 percent

• Employees believe AI will raise employment 0.5 percent in the next three years.

Perhaps the most-unexpected result is the employee belief that AI will actually boost employment at their firms over a three-year period. That findings seems at odds with the usual press reports suggesting employee angst about AI impact on employment. 

The least-surprising result should be the inability to pinpoint AI productivity gains. 

For starters, U.S. productivity has recently been rising since about 2019, well before AI emerged as a potential driver. 

Labor productivity measures how efficiently workers use the capital available to them, such as equipment or software. The data suggests workers are doing so. 

Total factor productivity uses a broader view, measuring how efficiently the economy uses all inputs together, including both labor and capital.

One interpretation might be that workers have been using tools effectively, but that the gains have not yet shown up in TFP metrics. 

Think about your own work. Many of us would absolutely agree that AI has boosted our own personal productivity. But few of us can point to measurable gains in economic `outputs. 

Federal Reserve Bank 

And U.S. productivity had been rising since about 1992 as well, to 2000. 

Federal Reserve Bank 

For some observers, past experience suggests a productivity gain will happen. The U.S. economy has experienced several distinct productivity regimes over the past 70 years, including a high-growth period in the late 1990s, with the proliferation of computers and the internet, and a lengthy period of low average growth during the 2010s.

Federal Reserve Bank

Right now, it appears there is a significant disconnect between labor productivity and TFP. 

“The divergence between strong labor productivity growth and more modest TFP growth suggests that recent investments related to AI might be making workers more productive by providing them with better tools, such as new software and expanded computing capacity, but broader efficiency gains remain unrealized so far,” the report says.

But the report also says the pattern (Labor productivity and TFP misaligned) resembles what we saw when the internet became important. 

There was a lag then, and there is arguably a lag now. As the adage goes, one can see the impact everywhere but in the outcomes (paraphrasing the Solow Paradox: "You can see the computer age everywhere but in the productivity statistics.").