david notes that it took several decades following the initial development of the electric motor for companies to reorganize their production techniques to use the new invention efficiently. by analogy, david ’ s argument hints that the largest benefits of computerization may be yet to come. this analogy is intriguing, but counterarguments certainly can be made as well. one reason it took electric power so long to yield benefits is that it took many years for the new technology to gain widespread use, in part because of the huge expenditures required to reconfigure manufacturing plants to use electric power. by contrast, the transition from older office equipment to mainframe computers, and then to desktop machines, often entails much smaller adjustment costs and so has been comparatively rapid. furthermore, it is easy to forget that, while computers account for a large share of investment, they account for only a small share of the overall capital stock, in part reflecting their rapid rate of depreciation. thus, unless computers earn a considerably higher return than other investments that firms might make, the small share imposes some limits on the contribution computers could make to overall productivity growth. so, while we can be hopeful that the recent productivity increases may represent a faster long - term trend, we should not count our chickens too soon. but you certainly can add productivity to the list of items i will be following closely in the period ahead. conclusion with strong output growth, low unemployment, low inflation, and rapid productivity growth, these have certainly been good times to be a central banker. but this does not mean that they are not interesting times, as a glance at the financial pages will drive home. although our economy is basically very strong, we also face near - term and longer - term challenges, and i hope i have given you a sense of some of the issues that will be on my mind as i try to gauge our nation ’ s economic performance in the period ahead.

bonuses of five to ten percent of base salary, or higher. firms are changing their compensation practices in other ways, too. businesses increasingly are relying less on base wage and salary increases, and are substituting some form of variable pay that is tied directly to performance, such as annual bonuses and profit sharing plans, or even stock options that extend well beyond senior management. these changing labor market practices have implications for the functioning of the economy that are both interesting and, potentially, quite important. for one thing, many targeted bonuses may not be adequately captured by our aggregate wage statistics, so if these bonuses are becoming more prevalent, labor costs may be rising somewhat faster than the published data would indicate. second, these practices may lead to changes in the cyclicality of firms ’ compensation costs. on the one hand, if firms now are able to use targeted bonuses to certain workers in place of generalized wage increases, this could hold down compensation costs in tight labor markets, thereby making these costs less cyclical. on the other hand, increasing use of variable pay will tend to make compensation more cyclical than it otherwise would have been. under a profit sharing system, for example, firms make larger compensation payments to their employees when times are good than they do when business is slack. if the latter effect were to dominate, and compensation were to become more cyclical, it would raise interesting questions about how this change might affect firms ’ pricing behavior. to some extent, of course, firms probably smooth through the cyclical ups and downs in their costs when making price decisions in any case. but such smoothing probably is not perfect, and increases in fixed pay probably would exert some upward pressure on prices. increased use of profit - sharing bonuses, however, would presumably lead firms to boost their employees ’ compensation precisely when they can most afford to do so. and, conversely, when profits are being squeezed, the resulting decline in bonus payments would help ease the firm ’ s cost pressures. thus, there may be reason to believe that increases in variable compensation payments might not lead to the same price pressures as would increases in fixed compensation payments. in other words, increased cyclicality of compensation gains might not imply any change in the cyclicality of price increases. finally, the spread of variable pay could lead to changes in employment patterns. pay that is more variable is more tied to profitability. as profitability declines, so will compensation, and it is possible that employment may not drop as much as it would in a world in