Advances in information technology are doing wonders for companies' productivity and profitability. They also provide a new reason to be biting our nails about the job market.
Corporate number-crunching is paying off as never before, according to a trio of academic researchers led by Erik Brynjolfsson of the Massachusetts Institute of Technology. Trillions of bits of data about customers' behavior are being harnessed by big banks, retailers and manufacturers. This input includes fine-grain analysis of everything from warehouse-tag signals to Internet users' click-stream behavior.
The good news: data-driven decision-making is translating into a 5 percent to 6 percent increase in output and productivity compared to companies that don’t employ the technology, according to the researchers. Those gains transcend the usual payoffs from spending on information technology. Companies most skilled at data mining are winning stock market recognition for their success.
The more ominous news is on the job front. The better data crunching allows companies not only to get by with fewer workers, but also to hire workers only when they really need them -- as opposed to hiring based on gut instinct about where the economy is headed. In other words, businesses' "animal spirits" play a smaller role in generating the kind of virtuous cycle of rising hiring and demand that tends to drive strong recoveries.
Brynjofsson says that even the most advanced companies are less than halfway toward fully taking advantage of the transformation in data technology. That suggests a bright future for them, but could be tough for the unemployed.