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Technology And The Workplace

Essay by   •  November 28, 2010  •  398 Words (2 Pages)  •  1,295 Views

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In the early 1990s, with little advance notice, technological innovations began to offer sharply higher prospective returns on investment than had prevailed in earlier decades. The first sign of the shift was the sharp rise in capital investment orders, especially for high-tech equipment, in 1993. This was unusual for a cyclical expansion because it occurred a full two years after the trough of the 1991 recession.

By 1995, the investment boom had gathered momentum, suggesting that earlier expectations of elevated profitability had not been disappointed. In that year, with inflation falling, domestic operating profit margins started to rise, indicating that increases in unit costs were slowing. These developments signaled that productivity growth was probably beginning to move higher, even though official data, hobbled by statistical problems, failed to provide any confirmation. Now, five years later, there can be little doubt that not only has productivity growth picked up from its rather tepid pace during the preceding quarter century but that the growth rate has continued to rise, with scant evidence that it is about to crest.

The acceleration of productivity stemming from the investment boom has held cost increases in check. Despite the surge in demand, unit labor costs over the past year have barely budged, and pricing power has remained well contained. Apparently, firms hesitate to raise prices for fear that their competitors will be able to wrest market share from them by employing new investments to produce at lower costs.

Indeed, the increasing availability of labor-saving equipment and software, at declining relative prices and with improving delivery lead times, is arguably at the root of the loss of business pricing power in recent years. To be sure, marked increases in available global capacity and the deregulation of key industries have removed bottlenecks and increased the competitive supply response of many economies, especially

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