Discussions about the economy generally touch upon jobs, wages, capital, and other measurements, but they don’t often recognize “innovation.” Arguably the most important metric in assessing an economy’s growth, innovation helps to assess the ways companies are becoming more efficient in their practices. And last year, it reached its highest mark since 2010.
The official measurement of innovation, multifactor productivity, grew 1 percent last year – the fastest growth rate since 2010. Multifactor productivity measures the growth in output after measuring the effect of capital and labor. In other words, without adding more employees or capital, how are firms increasing output?
Productivity is crucial because it improves Americans’ standard of living under all circumstances. This occurs because as firms increase their profit margins through more efficient methods, they are able to increase employee salaries and/or lower prices. Either way, consumers cash in more money than they would with lower productivity.
Arizona Tech Council president and CEO Steven Zylstra highlighted the reasons why productivity has increased at its highest rate in nine years.
“I would attribute a significant amount of that enhanced productivity to technology,” Zylstra said. “I think all sorts of technologies are being used to streamline making things more productive than they historically could have been. I think that’s just going to increase significantly as we move into an era of AI and machine learning because so much will be able to be done with so little.”
Between 2000 and 2007, the U.S. experienced, on average, a 1.4 percent growth rate in productivity, which is much higher than the 1 percent growth rate last year. However, economic skeptics shouldn’t forecast an economic slowdown. Zylstra points out that this period followed the dot-com boom; because the internet was arguably the greatest technological advancement of all time, comparing the two growth rates isn’t a reasonable assessment.
With the rise of smartphones, robotics, and information technology, Zylstra believes we are well-positioned to ride this productivity wave moving forward. In fact, some of this growth even stems from Arizona, which ranks in the top third of US states for innovation.
“Here in Phoenix, we’re in the process of outfitting the most significant chip processing plant on the planet,” he said. “It’s going to produce semiconductors with seven nanometer feature sizes. The amount of capability that we’re able to put in people’s hands is mind-boggling. I think robotics and automation, software and IT, and the massive processing power have been some of the main drivers in enhancing our productivity.”
U.S. productivity is in its best position since 2010, and the economy will react accordingly. With the development of more efficient technologies and practices, everybody wins.