Overview
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 1970’s productivity growth in the U.S. slowed. A variety of explanations have 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.
3. Technological innovation has been a major factor in the growth in productivity in the U.S., but the benefits of innovation do not accrue only to the person or firm that financed the research, but 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 regulation policies. Taxes can hurt productivity growth by distorting economic decisions, by encouraging people to invest their time and money in ways, which reduce their taxes rather than in ways that are good for economic growth.
| Key Economic Concepts productivity, tax distortions, innovation, benefits of innovative activity, investment, technological changes, regulation, supply-side economics, human capital, uncertainty. |
| Contemporary Issues In 2002, U.S. labor productivity increased by over 4.5%. Some analysts estimated that about half of this increase was attributable to cost cutting by companies in the face of sluggish economic growth. However, the rest was due to a more sustained rise in total factor productivity – or the efficiency of the economy – as a result of high-tech advances and the increased use of the Internet.Why is this increase in total factor productivity so important to the long-term growth in living standards? |
|
