High Times Stem From High-Tech ‘New Economy’

Something’s working in the U.S. economy--beginning with the people. Unemployment last month fell to 4.2% of the work force, the lowest level in 29 years. The economy added 46,000 jobs in March; it has added more than half a million jobs since the start of 1999.

The question is: Why is this happening in the seventh year of an economic expansion when most experts predicted a slowing economy this year?

Also, productivity is rising faster and more confidently than it has in years, meaning the economy is getting more output per hour of work or unit of capital invested. U.S. living standards are rising again across the board after years, even decades, when they rose slowly or in patchwork fashion, giving some people higher incomes but reducing pay for others.

The “new economy” is the explanation for what’s happening, “the economy driven by powerful personal computers, high-speed telecommunications and the Internet,” says a report titled “The New Economy Index” by the Progressive Policy Institute in Washington. The institute is a think tank, attached to the Democratic Party’s Leadership Council, which leans to the conservative side on economic questions.

Most job growth is occurring in the information and biomedical industries, which now produce more than 6% of the economy’s $8 trillion annual output of goods and services. That’s roughly comparable to the automobile industry’s share of the economy.

High-tech industry, defined as electronics, computers, software and services, communications and some aspects of medical equipment, now directly employs 4.8 million people, reports the American Electronics Assn.

But far more significant is the pervasive effect of computing and communications services throughout the economy, from supermarkets to scientific laboratories.

Even the federal government admits that high tech has changed the economy so much that it is uncertain how to measure it. The Bureau of Labor Statistics said last week that it has underestimated productivity increases caused by new technology.

Clearly, the economy has entered a new phase that demands fresh understanding because it changes everything, including calculations about jobs, business, the stock market and the world economy.

Knowledge is the most important factor in the new economy, says economist Robert Atkinson, who oversaw the Progressive Policy Institute’s study. “If we measure it in tons, U.S. economic output is the same as it was a century ago,” Atkinson says. “Yet its real economic value is 20 times greater.”

Knowledge, embedded in products and services and the machines and processes that make them, has made the difference. As an example, Atkinson cites anti-lock brakes, which are loaded with electronics and the product of years of research and development. Anti-lock brakes weigh the same as conventional brakes but are inherently more valuable because of knowledge in the product.

Everyone can cite an example, from the factory worker who now runs eight sophisticated cutting machines at one time to the hospital worker who can hook up a machine to monitor patients and automatically adjust treatment.

Knowledge in the circuits of the machines adds value to the hands of the workers. That is the essence of productivity--getting more value from the same resources.

But why haven’t such advances, which amount to displacing employees that used to be needed in factories and hospitals, led to rising unemployment?

Because productivity does more than allow work to be done faster and better--it creates wealth, gives us more money to spend on other goods and services, leads to inventions. Some 69 million Americans now use cellular telephones, which hadn’t even been invented a decade ago.

It’s pertinent to consider technology’s effects on the economy at this time because the long-awaited productivity effects of computers on service work, which accounts for 80% of the jobs of the 128 million employed Americans, are now showing up.

Productivity increases in service work have picked up more than 2% in each of the last two years, as U.S. companies have continued to invest heavily in communications and computing technology.

For more than two decades, productivity had lagged in service work, causing great consternation that U.S. living standards were slipping. “It was a transition from old ways of doing things, [from] centralized big companies dominating the economy,” economist Atkinson explains.

Now the economy has speeded up. Commerce on the Internet is increasing, to a total of roughly $50 billion this year. Internet commerce is projected to rise to more than $200 billion in the next two years--9O% of it business-to-business. Consumer commerce on the new medium will grow exponentially also, as the number of U.S. homes with online access rises from 30% today to more than 50% in a few years.

Not only jobs but companies are being created. The total number of companies in the economy, including single-person firms, is now about 17 million and growing rapidly. The variety and diversity of businesses helps account for the vibrant employment picture.

Jobs being created cover a full range of pay levels and educational requirements, although the Labor Department’s official projections show a predominance of information and medical positions opening up in the next five years.

Most in demand will be database administrators and computer support specialists. The economy will also need 350,000 more home-care aides, physical therapists and medical assistants in the next five years, reflecting an aging population’s need for medical care.

The U.S. economy also will be more open to the world. McKinsey & Co. researchers estimate that by next year, $21 trillion worth of goods and services will be exposed to competition in the global marketplace, up from $4 trillion only five years ago.

That spells a more intensely competitive world, with more risk--but also more opportunity--for U.S. companies. For the lesson of the vibrant U.S. job picture is that accepting change pays off.

Other countries have been slower to accept change in their industrial practices. But high unemployment is forcing them to change. German unemployment is still more than 10%, France’s more than 11%. Even Japan’s unemployment is rising rapidly as that economy begins restructuring.

So the years ahead are likely to see economic patterns around the world similar to those of the U.S. economy in the 1990s.

That promises a healthy outlook because the last seven years of this decade have seen U.S. unemployment fall from 7.5% to the present 4.2% as brisk economic growth and new technology created millions of jobs. The “new economy” is bountiful indeed. May it continue to produce employment reports like Friday’s.

James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.

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On the Job

After a bad start, with U.S. unemployment rising to 7.5% in 1992, the ‘90s have seen a fall in joblessness to the lowest level since 1970.

March 1999: 4.2%

Source: Bureau of Labor Statistics