Download Productivity

ECONOMIC
GROWTH
Part II
II. PRODUCTIVITY
AND ECONOMIC
GROWTH
Productivity
Productivity is defined as:
AMOUNT OF OUTPUT
AMOUNT OF INPUT
Although we can attempt to measure the
productivity of any input, it is not always
easy to do so.
TOTAL FACTOR
PRODUCTIVITY
Economists use Total Factor Productivity
(TFP) to measure the overall productivity of
an economy.
TFP =
ECONOMY’S OUTPUT
STOCK OF LABOR & CAPITAL
TOTAL FACTOR
PRODUCTIVITY
TFP is an attempt to measure how well the
people of a country use their resources.
It is not easy to measure.
TOTAL FACTOR
PRODUCTIVITY
A more sophisticated way to measure
economic growth involves TFP:
Economic growth = GROWTH RATE OF
TFP
+ GROWTH RATE OF
RESOURCES
TOTAL FACTOR
PRODUCTIVITY
Formally, Economic Growth is a function of:
%^Y = %^TFP + .70(%^L) + .30(%^K)
TOTAL FACTOR
PRODUCTIVITY
%^Y = Percentage Change in Real GDP
%^TFP = Percentage Change in Total Factor
Productivity
%^L = Percentage Change in Size of Labor
Force
%^K = Percentage Change in Capital Stock
TOTAL FACTOR
PRODUCTIVITY
In other words, economic growth depends
upon changes in the productivity of all
inputs in the economy
+ changes in the number of people working
+ plus changes in the size and type of capital
goods used.
III. THE U.S. PRODUCTIVITY
SLOWDOWN
The US Productivity Slowdown:
Some Causes
Economists and others have become worried
about the slow down in productivity in the
United States.
They have advance a number of explanations.
The U.S. Productivity Slowdown
1)
2)
3)
4)
5)
6)
Education level of the workforce
Quality of education
Demographic change
Technological innovation
Energy prices
Manufacturing vs. services
Education Level
By education level, we mean the average level
of education.
Clearly not the case, since people have
become more educated in the last 30
years.
Quality of Education
SAT scores have been used to show that
students are less well educated and
knowledgeable than before.
Possibly true, but not necessarily measured by
SAT scores.
Very hard to measure quality of education.
Demographic Change
The story of the baby boomers entering the
labor market as inexperienced and not
very productive.
A small part of the problem, because the
timing of when productivity fell and when
boomers entered the labor market doesn’t
mesh.
Technological Innovation
It has been argued that there was less
innovation and inventiveness in that
period.
If we measure innovation by number of
patents issued, there certainly was less.
But why?
Energy Prices
The oil price hikes of the 1970’s caused two
global recessions.
Definitely contributed to economic slowdown
and productivity slowdown.
Manufactures vs. Services
It is much easier to measure productivity in
manufacturing than in the service sector.
Clearly some of the problem is in measuring
productivity.
Manufactures vs. Services
A big piece of the puzzle is that services are
much more resistant to improvements than
is manufacturing.
As the US shifted to a post manufacturing
economy, it was inevitable that
productivity would slow down.
Final Thoughts
1) Productivity of factory workers in the U.S.
rose continuously in this period.
2) Productivity of office and service sector
workers, difficult to measure, rose slowly.
3) Part of the drop was due to the shift from
manufactures to service sector.
4) Part was due to the energy crisis.
Final Thoughts
Bottom line:
we still don’t know completely what
happened to productivity in the US!