mooseMy MIT colleague David Autor delivered a wonderful paper at the recent Jackson Hole Economic Policy Symposium about American job and wage patterns in recent decades, and their link to the computerization of the economy. I’ll say more later about his paper, which was one of the highlights of the event for me (sighting this moose was another one). For now I just want to highlight one graph that he included, and draw a couple additional ones.

Autor included a chart very much like the one below, which tracks US corporate spending over time on digital stuff — hardware and software — as a percentage of GDP:

The most striking pattern in this graph is the sharp increase in the late 1990s, and the steep falloff since then. We’re spending just about a full percentage point of GDP less on IT than we were fifteen years ago. This seems like a compelling prima facie case for believing that IT’s impact on the economy and the labor force should be less than it was before the turn of the century.

And this is what Autor believes. As he writes

the onset of the weak U.S. labor market of the 2000s coincided with a sharp deceleration in computer investment—a fact that appears first-order inconsistent with the onset of a new era of capital-­labor substitution.

I completely agree with him (based largely on his very convincing work) that other factors have strongly shaped the US economy and labor force since the 2000, particularly the emergence of China as an offshoring and manufacturing powerhouse. But I’m not so sure that the impact of digital technologies tapered off to the extent the graph above would have us believe.

To see this, let’s break out the data on software. Information processing equipment is simply a vehicle for software, in much the same way that a bottle of 5-hour energy is a delivery system for caffeine. Hardware runs software, in other words, and it’s software that runs things.

It’s easy to lose sight of that fact in an era of gorgeous devices like Apple’s, but without the apps my iPhone is just a… phone. It’s software that is ‘eating the world,’ to use Marc Andreessen’s memorable phrase.

So how has software spending held up? Pretty well:

There was a slight dropoff after the dot-com bubble burst and the Y2K fiasco passed, but we’re back near the all-time software spending peak. It’s true that this spending has been pretty flat for the past fifteen years, but we should keep in mind that this is also the time when open source software and the cloud and everything-as-a-service burst on the scene. All of these development have significantly lowered the bill for a given level of enterprise software capability, so I look at the graph above as pretty good evidence of constantly increasing demand for software, even though spending has remained constant for a while now.

The ascendancy of software can be seen in a graph of its share of total IT spending over time:


Software now accounts for over half of all IT spending. As Moore’s Law, volume manufacturing, and the cloud continue to drive down the costs of hardware, I expect software’s share of total spend to continue to rise steadily.

I don’t know what’s going to happen to total IT investment as a percentage of GDP going forward. It does feel to me like a sea change is taking place — that it’s getting so much cheaper to acquire digital technologies that even if demand for them rises strongly in the future total spending on them might not (or as an economist would put it, the price effect might be greater than the quantity effect).

So even if the first graph above doesn’t greatly change its shape in the years to come, I won’t take that as evidence that the digital revolution has run its course. Will you?


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I am sorry to brag, but this really is an all-star lineup. If you’re at all interested in technological progress and its implications for our businesses, economies, and societies, you should attend the 2014 Second Machine Age conference.

MIT Second Machine Age conference It’s being held on September 10 and 11 at the gorgeous MIT Media Lab building, and organized jointly by the Institute’s Industrial Liaison Program and the Initiative on the Digital Economy (which I cofounded with Erik Brynjolfsson). Erik and I are both speaking, but that’s not the the exciting part (sorry, Erik). What’s truly exciting is the group of people who have agreed to join us and share their latest work and thinking. Where else can you, in the space of two days, hear from:

  • LinkedIn cofounder Allen Blue
  • DARPA’s Gill Pratt
  • and MIT heavy hitters Sinan Aral, Bill Aulet, David Autor, Cesar Hidalgo, Joi Ito, Fiona Murray, Sandy Pentland, Julie Shah, Scott Stern, Deb Roy, and Daniela Rus?

Nowhere, that’s where.

Most of the seats at the conference are reserved for ILP and IDE members, but there are a few available to the general public. The ILP has graciously given our social media followers a special code to use when registering for the conference. So if you’d like to attend (I can’t fathom why you wouldn’t), enter “2MA150″ during general registration and you’ll get discounted admission. There are only a few of these discounted seats available, so sign up now!

Hope to see you on campus in September…


The Clearest Trend in the American Workforce Is Not an Encouraging One

August 14, 2014

It’s been a while since I posted data on US employment trends, so here’s a chart created with FRED’s snazzy new graphing interface. It shows the employment rate (in other words, 100 – the standard unemployment rate) in blue, the employment-to-population ratio (the % of working-age people with work) in green, and the labor force […]

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When Using Your Smartphone Can Be the Best Thing for Your Mental Health

August 7, 2014

My last post here took on Zeynep Tufekci and, by extension, others who believe the current trend of using robots and other forms of advanced technology for caregiving is, as she put it, “an abdication of a desire to remain human, to be connected to each other through care, and to take care of each other.”  I […]

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Even If Grandma Embraces Her Robot, Should We Fear It?

July 29, 2014

Zeynep Tufekci‘s recent piece “Failing the Third Machine Age: When Robots Come for Grandma” has been getting some attention. It’s a polemic against the prospect of using advanced technologies to provide elder care, embedded within a larger diatribe about technological progress, automation, and capitalism. I don’t want to take on her big argument here. If you […]

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When Regulators Attack: Cambridge and Uber

June 19, 2014

I’m on the brink of making a big real estate commitment in Cambridge, the idiosyncratic New England city I’ve called home since 1994. But a set of proposed regulations discussed at a License Commission meeting last night are so bad and so dumb they’re causing me to rethink whether or not I really want to live […]

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The New Millennium’s Downward Ramp of Jobs

June 13, 2014

Recent research continues to shed light on the big trends in the US labor market. Unfortunately, many if not most of them are bad news. As Thomas Edsall describes well in his latest New York Times column, it looks like demand has slowed down for even the most cognitively demanding jobs (in other words, the highest skilled […]

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If There Was Already an Ocean of Data in 2007, How Much is there Now?

June 2, 2014

  I’ve been trying to figure out how to convey the scale of the ‘Big Data‘ phenomenon — the recent worldwide explosion of the volume of data encoded in digital form. Inspiration came from Randall Munroe’s fantastic “What if?” comics, which provide “Serious Scientific Answers to Absurd Hypothetical Questions.” (check out his 2o14 TED talk and pre-order […]

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Even Sweatshops are Getting Automated. So What’s Left?

May 22, 2014

Comparison of Nike’s successive sustainability reports reveals that the company used 106,000 fewer contract employees around the world in 2013 than 2012 (a greater than 9% drop), even as both profits and revenues increased by 16% and 5%, respectively. A story in the International Business Times states that this is because the company is “shift[ing] […]

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Why Is Customer Service Still So Lousy? Monopolist (i.e. Comcast) Edition

April 24, 2014

Every so often I have an experience as a consumer so bad that I have to write about it. The latest were the interactions I had with Comcast to get a new TiVo box working properly at my Mom’s house in Chicago and then (having, I thought, learned from that one) ordering a Comcast DVR […]

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