When Congress convened its National Summit on High Technology in June, Federal Reserve Chairman Alan Greenspan reiterated his view that the nation's current economic nirvana -- low unemployment, rising real wages and negligible inflation -- results in large part from productivity gains related to dramatic improvements in information technologies. Because productivity growth has averaged 2% annually over the past four years -- doubling its pace over the previous two decades -- firms have been able to raise wages at a 3.5% rate without stirring inflation.

While the dispersion of information technology (IT) has clearly boosted national productivity, there is disagreement about the degree to which average workers are benefiting from this trend. For example, a new study by San Jose-based Working Partnerships USA http://www.atwork.org/concludes that California's IT-driven economic boom carries hidden costs, including a dramatic increase in temporary-help jobs, widening income inequality, more rapid job turnover and longer periods of unemployment for displaced workers. Others argue that the trend is largely positive.

Rapid growth in IT output and productivity is quite possibly the single largest factor reshaping the structure of employment opportunities for millions of American workers. While there is a widespread belief that IT industries will provide a very large share of future job opportunities, the reality is far more complex.

Earlier this year I did a study for the U.S. Department of Labor that looked at the impact of IT on the work force. The Department of Commerce did a broader two-part study, called The Digital Economy, http://www.ecommerce.gov/which reached similar conclusions about both the generally positive impact of IT on employment, incomes and job opportunities -- and the labor market imbalances that cry out for intensified education and retraining programs.

IT is creating more jobs in other industries

One of the more surprising findings is that until just the past few years -- since the commercialization of the Internet -- employment in IT industries grew more slowly than private-sector employment overall. IT job growth would have been negative over the decade after 1987 except for computer software and services, which doubled to over 1.2 million workers.

In the four IT manufacturing industries -- which produce computers and communications equipment, electronic components, semiconductors and audio/video equipment -- real output more than doubled, yet total domestic employment shrank by 168,000. Communications services -- which includes telecomm, cable and broadcasting -- increased employment just 5% (60,000 jobs) over this same 1987-96 period.

Of course, the primary culprit behind this long period of jobless growth was a stunning increase in labor productivity. Over the 1987 to 1995 period alone, the number of workers required to produce a constant $1 million worth of IT manufacturing fell by half.

A second surprising result is that the huge growth in IT output and productivity is supporting a larger and rapidly increasing number of jobs in other (non-IT) industries across the economy. These jobs are created because of the inputs purchased by IT industries -- everything from plastic and packaging for software, to midnight pizzas for programmers.

For example, while computer-related equipment manufacturing shed 25% of its work force between 1987 and 1995, as it tripled its real output the number of jobs supported in other industries rose by 260,000. Overall, domestic jobs supported in other industries by demand from IT surged from 1.3 million to 3.4 million jobs by 1996 -- a number that may already exceed the estimated 4.2 million workers employed directly in IT industries today.

A third result of IT's relentless productivity push is that the wages paid by IT-producing industries are rising significantly faster than the average for all industries. In 1997, workers in IT industries earned an average $53,000 compared with less than $30,000 for all private-sector workers, the Commerce study found. One reason is that as IT skill levels and productivity rise, so does value-added per employee and profits.

Even the jobs supported indirectly by IT purchases pay significantly better than average. Because IT industries support a disproportionate number of high-wage jobs in non-IT industries (for example, more attorneys than janitors), wages paid on service-sector jobs supported by IT are 10% higher than average -- and 30% higher in manufacturing.

A fourth finding is that the occupational structure within each IT industry has changed rapidly to reflect higher levels of education, skill and responsibility. In general, an increasing share of the IT work force is in more highly paid managerial, professional specialty and skilled craft occupations -- while a steadily shrinking share of IT workers are in lower-paid service, administrative support and blue-collar occupations.

Will IT continue to drive national prosperity? Government projections suggest virtually uninterrupted growth of IT-related job opportunities. The Bureau of Labor Statistics {http://bls.stats.gov/emphome.htm projects a 1.4 million increase in direct IT employment (to 5.6 million) by 2006, most of that in computer software and services. Similarly, Commerce expects that IT output will continue to grow much faster than the overall economy.

The dark side of rapid productivity growth

Can U.S. workers take full advantage of these opportunities? That is a tougher issue that will require new policies and human-capital investments to address the growing demand in all industries for skilled IT workers.

Last year Congress increased for three years the number of guest worker (H-1B) visas available for high-skilled foreigners from 65,000 to 115,000. Opponents argued that industry simply wants more young immigrants willing to work long hours for lower wages, when plenty of older programmers and career-switchers here at home simply need retraining.

"Churning" is another reason a more concerted education and retraining effort is needed. The dark side of the IT productivity push is that automation can also "de-skill" or displace workers -- such as thousands of one-time telephone operators. Similarly, outsourcing can send low-end assembly jobs to Asia. New occupations are being created -- while others are made obsolete -- in an accelerated version of capitalism's inherent process of "creative destruction."

At the June summit, Greenspan tried to explain why the United States alone is fully capitalizing on IT productivity gains: "One hypothesis is that a necessary condition for information technology to increase output per hour is a willingness to discharge or retrain workers that the newer technologies have rendered redundant. Countries with less flexible labor markets than the U.S. enjoys may have been inhibited in this regard," he testified.

The challenge for both industry and government is to forge new partnerships to boost IT skill development. IT-driven productivity growth has already created a virtuous cycle of job and wage gains that benefits the economy as a whole. With the larger goal of broadly shared prosperity in mind, what the U.S. needs now are more effective policies aimed at minimizing the "hidden costs" of skill shortages, displaced workers in need of transitional assistance, phony temporary work classifications and rising income inequality.