Technology and productivity growth

Establishment-level productivity within narrowly defined industries is widely dispersed. This productivity dispersion may arise because the process of adoption and diffusion of an innovation is complex, as new innovative establishments enter and other less innovative establishments shrink (and may even exit). Given that much innovation is embodied in new businesses, the increase in business formations since the start of the pandemic may be an optimistic sign for the future—but should be viewed against the backdrop of an overall decline in business dynamism. Artificial intelligence (AI) is arguably the most-touted productivity-enhancing technology on the horizon. Firms that have made the most use of AI—mainly larger ones—are growing faster than others through product innovation, but as yet their productivity performance is not noticeably better than their peers. This may change over time, as the adoption of AI technologies becomes more widespread, and the use of AI technologies is directed more toward productivity enhancement.