Growth in Productivity

12 Key excerpts on "Growth in Productivity"

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  Contemporary Economics

  An Applications Approach

  • Robert Carbaugh(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  3

  3 The most popular measure of productivity for the U.S. economy is average labor productivity. Labor productivity is measured in terms of average output per hour. It is a ratio of the quantity of output to the hours of work done. The quantity of output is based on real GDP, as discussed in this chapter.

  Rearranging the terms can help illustrate the significance of productivity for economic growth as follows:

  Total output = Productivity × Hours worked

  This shows that total output depends on both work and productivity. Any increase in total output must come from an increase in either hours worked or productivity.

  As seen in Table 10.4 , U.S. productivity growth has been erratic. During the 1960s, productivity grew by 3.2 percent per year. But during the next three decades, productivity growth fell to less than 2 percent per year only to improve at the turn of the century, and then weaken. Higher rates of productivity growth permit rising real compensation for labor, as this table illustrates.

  What factors contribute to changes in productivity? Clearly, technological advancement has much to do with productivity gains. During the past century, the development of power-driven machines such as tractors, improvements in transportation such as railroads and airlines, and the growing stock of computers have increased the productivity of workers.

  Obviously, technological advancement requires invention—that is, the discovery of a new process or product. Yet it also encompasses innovation, the successful introduction and adoption of a new process or product. Henry Ford did not invent the automobile; instead, he was an innovator who pioneered assembly-line production techniques that allowed workers to produce more automobiles in the space of an hour, resulting in falling costs for each automobile produced.

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  The Economy in the 1980s

  A Program for Growth Stability

  • Michael J. Boskin(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  II Productivity and Economic Growth Passage contains an image 2 MICHAEL J. BOSKIN Economic Growth and Productivity

  Measures of economic growth. Changes in economies here and elsewhere. U.S. saving and investment, inflation and taxes. The slowdown in productivity. Structural reforms and reduced tax rates.

  The mere mention of the term “economic growth” conjures up different images, hopes, and complaints to different people. To the mass of mankind struggling at the margin of subsistence in the world’s less-developed economies, the prospect of economic growth is literally the most important issue facing those individuals and societies. For most persons living in advanced, predominantly free-enterprise, economies such as those of North America and Western Europe, substantial economic progress over the last two centuries has lifted the bulk of the population well above subsistence so that they have come to experience—indeed, to expect—relatively steady increases in their standard of living. Economic growth implies to some people a variety of untoward consequences that occasionally accompany growth, such as environmental pollution and congestion. Hence, we see at the same time movements to halt growth and desperate attempts to increase it; conflicting concerns for growth, appreciation of the need for it, and alternative measures to achieve it pervade what has now become a heated debate. While most would concede that some economic growth is desirable for the less-developed economies of the world, debates rage in most advanced economies over the desirability of growth per se, and especially of the form that growth takes.

  The most traditional measure of economic growth is the rate of increase of gross national product (GNP) per capita, per employed worker, or per worker hour. For an entire economy this measure obviously is only an average and conceals variations in the growth rate across industries, regions, and population subgroups. Further, since the growth rate reflects the increase in output over and above its original level, rapid increases in growth rates are statistically more likely when the base from which the growth is measured is quite small. But GNP is not by any stretch of the imagination a perfect measure of economic well-being. For example, it fails to include an evaluation of work performed in the household without explicit pay such as caring for and raising children, of changes in the value of leisure time consumed, and of a variety of illegal or off-the-books activities. It also fails to net out the costs embodied in such phenomena as environmental pollution and congestion. Indeed, the oft-quoted example of valuing the output of a factory which belches smoke into the air, and then adding to that output the value of the resources used to clean up the air so dirtied, indicates how misleading traditional income measures can be.

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  OECD Compendium of Productivity Indicators 2016

  • OECD(Author)
  • 2016(Publication Date)
  • OECD

    (Publisher)

  Labour productivity is the most frequently computed productivity indicator. It represents the volume of output produced per unit of labour input. The ratio between output and labour input depends to a large degree on the presence of other inputs, such as physical capital, intangible fixed assets used in production and technical and organisational change. Labour productivity is a key dimension of economic performance and an essential driver of changes in living standards.

  Key facts

  In countries with relatively low labour productivity levels, stronger labour productivity growth over the last two decades has helped reduce the productivity gap. This is particularly true for some Eastern European countries, the Baltic States and Korea, although their labour productivity levels in 2014 still remained below the OECD average. And while productivity growth rebounded from the crisis lows, growth rates remained far below pre-crisis levels. Labour productivity growth remained relatively weak in the United States and in some large EU economies – Italy and the United Kingdom – compared with the OECD average and a significant productivity slowdown was observed in the Russian Federation and South Africa, mainly reflecting slackening GDP growth.

  Definition

  Labour productivity is defined as GDP per hour worked. GDP is measured as gross value added in market prices. For international comparisons of labour productivity levels, the series of GDP in national currency and at current prices are converted to a common currency, US dollars, using current Purchasing Power Parities (PPPs). Growth rates of labour productivity, instead, are based on measures of GDP in national currency and at constant prices.

  In productivity analysis, and ignoring quality differences for the moment, labour input is most appropriately measured as the total number of hours actually worked, this is, effectively used in production, whether paid or not (System of National Accounts 2008, 2008 SNA, 19.47). Hours actually worked reflect regular hours worked by full-time and part-time workers, paid and unpaid overtime, hours worked in additional jobs, excluding time not worked because of public holidays, annual paid leaves, strikes and labour disputes, bad weather, economic conditions and other reasons (annex B

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  International Money and Finance

  • Anthony J. Makin(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Lest the figures chosen for this example seem a little removed from reality, it is worth noting that many Asian countries, notably China, India, Indonesia, Malaysia, Singapore, South Korea and Thailand have recorded growth rates of the order of 7 per cent or more in recent decades. In contrast, average growth rate in OECD economies has been below 3 per cent. The arithmetic of compounding dictates that living standards in OECD economies, measured in terms of income per capita, could eventually fall below those of many Asian economies on present trends.

  The macroeconomic production function

  To understand what drives economic growth, it is necessary to examine factors that contribute to changes in output over time. The starting point is the basic macroeconomic production function that relates the main inputs to production (technology, capital and labour) to output generation on the aggregate supply side of the economy.

  The most general macroeconomic production function is

  where T represents technology or multifactor productivity, K is the capital stock (defined to include land and buildings) and L is the labour force, usually measured in terms of number of workers, or hours worked. This function suggests that given quantities of physical factor inputs, capital and labour, as well as improvements in technology combine to produce a given level of aggregate output.

  Macroeconomic growth accounting

  So-called growth accounting conveys the contribution that technical change, capital and labour make to changes in output over time. If the macroeconomic production function is characterised by constant returns to scale, then multiplying all factor inputs to aggregate production by some percentage multiplies national output to the same extent. For instance, increasing all inputs by 10 per cent raises aggregate output by 10 per cent.

  It is possible to express any change in GDP over time as

  where ∆ signifies the period-to-period change in the variable and MP

  K

  and MP

  L

  are the marginal products of capital and labour, respectively. Recall that in competitive equilibrium, MP

  K

  , or the addition to output from using an extra unit of capital, is related to the rental cost of capital. Similarly, MP

  L

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  2022 CFA Program Curriculum Level II Box Set

  • (Author)
  • 2021(Publication Date)
  • Wiley

    (Publisher)

  The labor supply is determined by population growth, the labor force participation rate, and net immigration. The physical capital stock in a country increases with net investment. The correlation between long-run economic growth and the rate of investment is high.
• Technological advances are discoveries that make it possible to produce more or higher-quality goods and services with the same resources or inputs. Technology is a major factor determining TFP. TFP is the main factor affecting long-term, sustainable economic growth rates in developed countries and also includes the cumulative effects of scientific advances, applied research and development, improvements in management methods, and ways of organizing production that raise the productive capacity of factories and offices.
• Total factor productivity, estimated using a growth accounting equation, is the residual component of growth after accounting for the weighted contributions of all explicit factors (e.g., labor and capital).
• Labor productivity is defined as output per worker or per hour worked. Growth in labor productivity depends on capital deepening and technological progress.
• The academic growth literature is divided into three theories —the classical view, the neoclassical model, and the new endogenous growth view.
• In the classical model, growth in per capita income is only temporary because an exploding population with limited resources brings per capita income growth to an end.
• In the neoclassical model, a sustained increase in investment increases the economy’s growth rate only in the short run. Capital is subject to diminishing marginal returns, so long-run growth depends solely on population growth, progress in TFP, and labor’s share of income.