and in distribution channels. but technological innovation has spread far beyond that. biotechnology is revolutionizing medicine and agriculture in ways that were unimaginable just a few years ago, with far - reaching consequences for the quality of life not only in the united states but also around the world. even more intriguing are those as yet unrealized opportunities for computers and information technology to expand our scientific knowledge more generally. as i indicated earlier, the major contribution of advances in information technology and their incorporation into the capital stock has been to reduce the number of worker hours required to produce the nation ’ s output, our proxy for productivity growth. echoing a debate that is as old as adam smith, some view this so - called labor displacing investment and the introduction of innovative production processes as a threat to our economy ’ s capacity to create new jobs. but because technological change spawns so many opportunities for businesses to expand, the introduction of new efficiencies has today, as in the past, created a vibrant economy in which opportunities for new jobs and businesses have blossomed. an intriguing aspect of the recent wave of productivity acceleration is that us businesses and workers appear to have benefited more from the recent advances in information technology than their counterparts in europe or japan. those countries, of course, have also participated in this wave of invention and innovation, but they appear to have been slower to exploit it. the relatively inflexible and, hence, more costly labor markets of these economies appear to be a significant part of the explanation. the elevated rates of return offered by the newer technologies in the united states are largely the result of a reduction in labor costs per unit of output. the rates of return on investment in the same new technologies are correspondingly less in europe and japan because businesses there face higher costs of displacing workers than we do. here, labor displacement is more readily countenanced both by law and by culture. parenthetically, because our costs of dismissing workers are lower, the potential costs of hiring and the risks associated with expanding employment are less. the result of this significantly higher capacity for job dismissal has been, counterintuitively, a dramatic decline in the us unemployment rate in recent years. but one less welcome by - product of rapid economic and technological change, and the necessary heightened level of potential job dismissal that goes with it, is the evident insecurity felt by many workers despite the tightest labor markets in decades. this anxiety stems, i suspect,

of the process that noted economist joseph schumpeter many years ago termed “ creative destruction ” - the continuous shift in which emerging technologies push out the old. today our capital stock is undergoing an increasing pace of renewal through investment of cash flow from older technology capital equipment and facilities into cutting - edge, more efficient vintages. this process of capital reallocation across the economy has been assisted by a significant unbundling of risks in capital markets made possible by the development of innovative financial products, many of which themselves owe their viability to advances in technology. at the microeconomic level, the essential contribution of information technology is the expansion of knowledge and its obverse, the reduction of uncertainty. before this recent quantum jump in information availability, businesses had limited and less timely knowledge of customers ’ needs and of the location of inventories and materials flowing through complex production systems. in that environment, decisions were based on information that was hours, days or even weeks old. businesses, to protect production schedules, found it essential, although costly, to carry sizable backup stocks of materials and to keep additional persons on their payrolls for making the necessary adjustments to the inevitable miscalculations and unanticipated shifts in demand for their products and services. of course, a great deal of imprecision persists, but the remarkable surge in the availability of real - time information has enabled businesses to reduce unnecessary inventory and dispense with labor and capital redundancies. intermediate production and distribution processes, so essential when information and quality control were poor, are being bypassed or eliminated. there are no indications in the marketplace that the process of re - engineering business operations is slowing, although it has been difficult analytically to disentangle the part of the rise in output per hour that is permanent and that which is the consequence of transitory business cycle forces. the part based on information advances, of course, is irreversible. having learned to employ bar code and satellite technologies, for example, we are not about to lose our capability in applying them. but until we experience an economic slowdown, we will not know for sure how much of the extraordinary rise in output per hour in the past five years is attributable to the irreversible way value is created and how much reflects endeavors on the part of our business community to stretch existing capital and labor resources in ways that are not sustainable over the longer run. i have stressed information technology ’ s crucial role on the factory floor