Productivity Growth High for High-Tech

Dr. James P. Smith

A recent study examining US Census Bureau data from 1963 to 1992 shows that the labor productivity (value added per hour worked) of plants that manufacture high-tech products grew at an average rate of 3.3 percent, compared with 2.5 percent for all manufacturing industries. The report, authored by Robert H. McGuckin and Kevin J. Stiroh and published by The Conference Board Inc., covers almost all US manufacturing plants in operation during that time.

McGuckin, director of economic research for The Conference Board, said early productivity was a crucial factor in success, while older facilities had to become more productive in order to survive. "This study shows that older plants in high-tech industries had the highest productivity gains through the three decades examined," he said. "The newest high-tech plants tended to become competitive more quickly than new plants in other industries."

McGuckin identified two effects that tend to counterbalance the competition between a start-up plant and an older factory. The "vintage effect" measures the productivity advantage of new plants with access to capital, organizational structure and expertise. The average productivity of more recent entrants is 2.0 percent higher each year relative to earlier entrants. A "survival effect" measures the increase in productivity of the older plants that survived because of such factors as learning by doing and economies of scale. Productivity grew 2.3 percent per year for manufacturing plants that began production between 1963 and 1967 and were operating in 1992.

These findings reflect fundamental differences in production processes across the industrial spectrum: New companies can immediately be competitive in high-tech industries, while older, larger firms tend to dominate in others. As powerful vintage and survival factors interact, the competitive threshold rises. Managers must match the productivity gains in their particular industry to survive and be successful.

The census database used for this study divides the manufacturing plants into 19 industrial categories. Five of these are classified as high-tech industries based on their high R&D expenditures relative to industry sales. These industries are chemical, industrial machinery, electric machinery, transportation and scientific instruments.

McGuckin hopes to expand this study next year -- when the newest five-year census becomes available -- to include the effects of older companies that open new plants and the effects of mergers and acquisitions. Such analyses represent a formidable task because the database contains statistics on more than 200,000 working plants at any one time.