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TABLE 2-3.— Accounting for the Productivity Acceleration in the 1990s[Average annual percent change, except as noted]Item1973to19951995to1999Acceleration1Labor productivity ............................................................................. 1.43 2.90 1.47LESS:Contribution ofCapital services ................................................................ 1.06 1.53 .47Labor quality ..................................................................... .26 .31 .05Computer sector total factor productivity ........................ .16 .39 .23EQUALS: Total factor productivity excluding computers ................. -.06 .65 .701Percentage points.Note.— Labor productivity is the average of income-and product-side measures of nonfarm businessoutput per hour worked.Data for 1999 estimated by Council of Economic Advisers.Detail may not add to totals because of rounding.Sources: Department of Commerce (Bureau of Economic Analysis) for output and computer prices;Department of Labor (Bureau of Labor Statistics) for hours and labor quality; Macroeconomic Advisers,LLC for capital services; and Council of Economic Advisers.ductivity growth. Productivity growth has been particularly rapid in the computer-producingsector. A measure of productivity in the computer-producingsector would capture this direct effect. However, it is impossible to be preciseabout computer sector productivity because of the difficulty in measuring thereal inputs (such as engineering and other business services) to this sector fromother sectors. In lieu of a direct productivity measure, the rate of decline in therelative price of computers tells us something about quality improvement inthe computer sector. The price of computers relative to that of nonfarm output,which had been falling at an 18 percent average annual rate before 1995,fell at a 29 percent annual rate thereafter, indicating an acceleration in computerquality after 1995. An estimation that weights these changes by theshare of final sales of computers in nonfarm output (about 1¼ percent) findsthat improved computer quality added 0.23 percentage point to the post-1995 acceleration (fourth line of Table 2-3). (These methods and estimatesare, of course, approximate; one study using different methods attributes mostof the acceleration in trend productivity to the computer-producing sector.)These three explanations—capital deepening, changing labor composition,and rising computer quality—may account for half of the post-1995 accelerationin productivity. The other half reflects all the other factors that affect productivitygrowth. These may include cyclical influences and new efficienciesfrom the use of the Internet, especially for business-to-business transactions.Chapter 2 | 83