IT, Organizational Slack, and the Productivity Paradox: A Mesoscale Perspective on Effective Labor Input

This preprint proposes a unified explanation for the long-standing IT productivity paradox: although information technology (IT) consistently improves task-level efficiency, macroeconomic productivity indicators such as Total Factor Productivity (TFP) have remained stagnant. The paper introduces organizational slack—time absorbed by meetings, reporting, coordination, and administrative overhead—as the missing mesoscale mechanism that connects micro-level efficiency gains to macro-level productivity outcomes. While IT reduces processing time and error rates, the resulting surplus time is often consumed by expanding coordination and managerial processes, leaving effective labor input unchanged. To formalize this mechanism, the paper develops two complementary models of effective labor input: (1) a subtractive model, where slack reduces productive hours directly, and (2) a multiplicative model, consistent with empirical measures such as meeting share or managerial ratios. Both formulations show that even modest increases in slack can fully offset substantial efficiency gains. By integrating organizational behavior into growth accounting, the paper provides a mesoscale perspective that bridges micro-level IT effects and macro-level productivity trends. This framework offers a simple, intuitive, and empirically tractable explanation for why decades of IT investment have not translated into sustained TFP growth.