Do‐it‐yourself Digital: the Production Boundary, the Productivity Puzzle and Economic Welfare

Abstract

Part of the debate about the ‘productivity puzzle’ concerns potential mismeasurement of GDP due to digital activities. This paper discusses some measurement issues arising from digitally‐enabled substitutions in activity across the conventional production boundary. Production boundary issues are not new, as conventionally defined GDP statistics account for the monetary cost but not the time cost of consumption and production. This means that changes in the way in which time is allocated between market and home production affect measured growth and productivity, as well as economic welfare. Just as technological innovation in domestic appliances led to a substitution from home production into market consumption in the second half of the 20th century, today's digital innovations are driving some reverse substitution out of the market into home production. Statistical agencies do not currently collect the data needed to measure the scale of the switch, but the available evidence suggests that it may be enough to make a contribution to understanding the current productivity puzzle.

Toward a Framework for Time Use, Welfare, and Household-Centric Economic Measurement

“…The digitalization of services such as travel accommodations and finance is shifting activity in the other direction. The former will have flattered measured productivity figures while the latter will have depressed them (Coyle, 2018).…”

“…The transmission of actionable information increases the value of any economic activity, including consumption. The fact that information can be transmitted over the Internet at close to zero marginal cost changes pricing practices in ways that make the measurement of economic growth difficult (Hulten and Nakamura, 2018;Coyle, 2018). Hulten and Nakamura (2018) and Nakamura et al (2018) provide evidence that production measures of output growth may be an order of magnitude smaller than welfare measures for specific innovations.…”

“…Booking travel is an example of a nonroutine activity partially crossing from market to home production. Coyle (2018) argues that one potentially significant substitution concern moves out of marketed activity into home production (such as switching from travel agents to booking trips online from home, or the production of free open source software). Shifts between market activity and household activity may change the time required for a given outcome in subtle ways.…”

“…These questions have become more urgent in a world in which, thanks to digitalization, the boundaries between leisure, unpaid household contributions to economy activity, and paid work have become more porous (Coyle, 2018). In particular, the Internet, the use of which is now frequent and pervasive in so many economies, has opened up novel economic possibilities that are changing the possibilities for consumption and leisure as well as market and household production with remarkable speed.…”

Measuring the Digital Economy

“…Online information has reduced search and matching costs, and enabled households to substitute services that they produce for market services; for example, households can be their own travel agent (Bean, 2017). Free digital replacements (such as Skype as a replacement for long distance calls) can also be viewed as enabling households to eliminate expenses via do-it-yourself production (Coyle, 2017). Finally, the Internet enables volunteers to supply online content and open source software.…”