One way of evaluating the potential artificial intelligence represents as a potential driver of productivity advances is to note that, since the 1970s, sources of improvement not related to information technology seem to be waning.
In other words, information technology has become a crucial driver of productivity in the modern economy as other sources of improvement seem to have slowed. The caveat is that productivity of office and knowledge work is very difficult to measure.
One way of evaluating the potential amount of work in the U.S. economy in 2024, for example, is to note that the Bureau of Labor Statistics estimates 70 percent of U.S. jobs are in the services segments, while goods-producing jobs represent about 30 percent of total.
Pre-1970, IT contributions to productivity arguably were modest. IT boosts increased through the 1990s at a significant level, but have accelerated since 1990, by most estimates.
Time Period | IT Contribution | Underlying Improvement | Total Productivity Growth |
Pre-1970s | Low (5-10%) | High (90-95%) | Moderate (1-2% per year) |
1970s-1990s | Moderate (20-35%) | Moderate (65-80%) | Moderate (2-3% per year) |
1990s-Present | High (40-60%) | Low (40-60%) | Moderate (1-2% per year) |
On the other hand, total productivity has not grown all that much, averaging one percent to two percent in the most recent decades, despite IT apparently representing a higher percentage of total improvement.
So one way to position the potential AI role is to note that sustaining the present one-percent to two-percent annual productivity increases might hinge on wringing more value out of AI. There always is the possibility that some AI use cases could boost productivity growth measurably, which clearly is the hope.
The other angle is that AI--and IT in general--seems to have more impact in some industries, compared to others. Finance is typically among the industries considered to benefit most from almost any IT innovation. Government, education and healthcare tend to rank lowest.
Industry | Pre-IT Contribution | 1970s-1990s | 1990s-Present |
Finance & Insurance | Moderate (20-30%) | High (30-45%) | Very High (45-60%) |
Manufacturing | Low (10-20%) | Moderate (20-35%) | High (35-50%) |
Retail Trade | Low (10-15%) | Moderate (15-25%) | High (25-40%) |
Wholesale Trade | Low (5-10%) | Moderate (10-20%) | High (20-35%) |
Healthcare | Low (5-10%) | Moderate (10-20%) | Moderate (20-30%) |
Education | Low (5-10%) | Moderate (10-15%) | Moderate (15-25%) |
Government | Low (5-10%) | Moderate (10-20%) | Moderate (20-30%) |
.Some industries--including computing, telecommunications and software--are technology-based so might always show high value from applied IT, but financial returns might not be uniformly high.
Also, note that the financial return from holding bonds arguably provides a benchmark, as bonds are a product in the financial services industry but arguably do not benefit much, if at all, from IT.
Yes, retail friction is reduced as bonds can be purchased, held or sold electronically. But that might be among the few measurable operational or capital investment benefits.
E-commerce seems to be the industry most helped by applied IT.
Industry | 5-Year Average Return | 10-Year Average Return | 15-Year Average |
Telecommunications | 5-8% | 6-9% | 7-10% |
Computer Hardware | 8-12% | 10-14% | 12-16% |
Software | 10-15% | 12-17% | 14-19% |
Content (Media, Entertainment) | 6-9% | 8-11% | 9-12% |
Advertising & Marketing | 7-10% | 8-11% | 9-12% |
Retail (Traditional) | 4-7% | 5-8% | 6-9% |
Retail (E-commerce) | 12-15% | 15-18% | 17-20% |
Education | 6-9% | 7-10% | 8-11% |
Finance | 8-11% | 9-12% | 10-13% |
Government Bonds | 3-5% | 4-6% | 5-7% |
