The Output Contributions Of Computer Equipment And Personnel: A Firm-Level Analysis

Abstract This paper examines the output contributions of capital and labor deployed in information systems (IS) at the firm level during the period 1988–91 throughout the business sector, using two different sources of data on these inputs. Our production function estimates suggest that there are substantial excess returns to both IS capital and IS labor. Computer capital and labor jointly contribute, or account for, about 21 percent of output, although only about 10% of both capital and labor income accrue to IS factors. Although IS employees accounted for a very small share of total employment by 1986, IS employment growth is estimated to have made a larger contribution to 1976–86 output growth than non-IS employment, due to the very rapid growth (16% per annum) of IS employment. The estimated marginal rate of substitution between IS and non-IS employees is 6: one IS employee can be substituted for six non-IS employees without affecting output. Keywords: Computersinformation technologyproductivityemploymentautomationinvestment *Professor, Columbia Business School, and Research Associate, National Bureau of Economic Research. I am grateful to the Alfred P. Sloan Foundation for financial support; to Scott Liebs of Informationweek and Michael Sullivan-Trainor of Computerworld for providing me with data; to Michael Van Biema for helpful comments and assistance; and to Benedicte Reyes for capable research assistance. I am responsible for any errors. This research was conducted under the auspices of Columbia Business School's Center for Productivity and Technology. *Professor, Columbia Business School, and Research Associate, National Bureau of Economic Research. I am grateful to the Alfred P. Sloan Foundation for financial support; to Scott Liebs of Informationweek and Michael Sullivan-Trainor of Computerworld for providing me with data; to Michael Van Biema for helpful comments and assistance; and to Benedicte Reyes for capable research assistance. I am responsible for any errors. This research was conducted under the auspices of Columbia Business School's Center for Productivity and Technology. Notes *Professor, Columbia Business School, and Research Associate, National Bureau of Economic Research. I am grateful to the Alfred P. Sloan Foundation for financial support; to Scott Liebs of Informationweek and Michael Sullivan-Trainor of Computerworld for providing me with data; to Michael Van Biema for helpful comments and assistance; and to Benedicte Reyes for capable research assistance. I am responsible for any errors. This research was conducted under the auspices of Columbia Business School's Center for Productivity and Technology.