Importantly, given the high rate of depreciation and the steep declines in costs of high-tech equipment, these savings in unit labor costs are not being undermined by offsetting increases in unit nonlabor costs. Moreover, given intense competition and the resultant lack of pricing “leverage,” ongoing programs to reduce costs have become a key part of corporate strategies to maintain or improve profit margins.
The focus on cost reduction has worked to head off the development of inflationary pressures in this expansion. The Macroeconomic Implications of Faster Productivity Growth Theory teaches us that the step-up in the growth rate of technological change certainly has important implications for economic activity and inflation.