“BAUMOL’S DISEASE” HAS BEEN CURED: IT AND MULTIFACTOR PRODUCTIVITY IN U.S. SERVICES INDUSTRIES Jack E. Triplett Barry P. Bosworth The Brookings Institution Washington, D.C. 3 rd ZEW Conference on: The Economics of Information and Communication Technologies Mannheim July 4-5, 2003 This paper addresses two major issues from the recent productivity literature. The first question concerns the contributions of information technology (IT) and of multifactor productivity (MFP) to the extraordinary performance of the U.S. economy in the last half of the 1990s. Unemployment fell to historically low levels, without generating the inflationary consequences many economists predicted. Labor productivity (output per hour) emerged from its twenty-year period of stagnation, doubling after 1995 its anemic 1.3% average annual growth between 1973 and 1995 (Chart 1). These developments have been characterized as the emergence of a “new economy,” which economists and others have often associated in some manner with the increased use of IT. We look for the impact of IT in the portions of the economy where the IT is. The most IT intensive industries are services industries. We find a substantial contribution of IT to services industries’ labor productivity growth, but the impact of IT is not notably greater after