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Unit 23 — Productivity

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Purpose:

To explain the factors that affect productivity growth and the various ways in which the government has helped or hindered the growth in productivity.

Objectives:

  1. Labor productivity is defined as output per man-hour of employed labor. Factors that are important in determining productivity include education, training, the amount of capital (machinery, factories, etc.) per worker and technological innovation.
  2. During the 1970s productivity growth in the U.S. slowed. A variety of explanations has been offered for this. They include: a decline in R&D; a decline in investment relative to GNP; the relative inexperience of the baby-boom generation; the oil shocks; increased government regulation; and uncertainty due to inflation and the changeability of economic policy. In the 1990s and the 2000s, productivity growth accelerated. Debates about the causes of this acceleration have been heated.
  3. Technological innovation has been a major factor in the growth in productivity in the U.S. The benefits of innovation accrue not only to the person or firm that financed the research, but also to society as a whole. Therefore, there is a justification for some government support of research and innovation.
  4. The government may have retarded productivity growth because of tax and regulatory policies. Taxes can hurt productivity growth by distorting economic decisions and by encouraging people to invest their time and money in ways that reduce their taxes rather than in ways that are good for economic growth.

Audio and Transcripts

Meet the Series Experts

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Edward F. Denison

Edward F. Denison

Pioneer in the development of the U.S. National Income and Product Accounts, with an international reputation as the originator of “growth accounting,” the identification and quantification of the sources of growth in real national income/product.

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Mark Doms

Mark Doms

Chief Economist for the U.S. Department of Commerce, since 2010, and former Senior Economist at the Federal Reserve Bank of San Francisco.

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Arthur Laffer

Arthur Laffer

Economist known as “The Father of Supply-Side Economics” because of his influence in shaping public policy during the 1980s, especially in the realm of tax cuts.

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WHAT’S YOUR
ECONOMICS IQ?

  1. Historically, the rate of real per capita GNP/GDP growth in the U.S. has:

    averaged about 2% per year over the last century.

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  2. According to the economic analyst Edward Denison, the most important source of growth in the U.S. for the period 1929 to 1957 was:

    improved education and training.

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  3. Generally, in the field of technology, the U.S. has been:

    a world leader for much of its history.

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  4. Q. B. Jones is president of Medigadgets, Inc., a manufacturing firm specializing in equipment and supplies for the medical field. Jones works hard to attract investors for Medigadgets, and about 10% of the firm’s gross is reinvested. Jones’s rationale is that such investment is essential to high productivity. “Our people have the very latest equipment to work with,” says Jones. “We are light years ahead of our nearest competitors.” Jones’s perspective in this case is PROBABLY:

    accurate, since capital formation through investment has been a major contributor to economic growth in the U.S. One of the reasons for our continued economic growth has been a 10% investment of GNP/GDP in new plant and equipment. As a result, American workers have modern facilities and equipment to support their efforts, thus making them more productive.

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  5. Which of the following is among the MOST SiGNIFICANT reasons cited for the productivity slowdown in the U.S.?

    Changes in the composition of the labor force.

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  6. Economists worry about a slowdown in productivity for two MAIN reasons. One is the potential decline in technological change that could affect our future rate of growth. And the other is:

    concern over the risk of higher inflation rates.

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Glossary

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