PRODUCTIVITY GROWTH, TECHNICAL PROGRESS AND EFFICIENCY CHANGE

Abstract

Productivity is the most important determinant of the standard of living of a group of people, a nation or a planet. Productivity in its simplest form is output per hour worked, and its recent slower growth rate is distressing. The great gains in standard of living have come from higher output per hour. That was true of the United States and Europe during the industrial revolution, and its true of Asia in recent years. Gain could, theoretically, have come from a change in distribution: more income going to workers, and less to owners of capital. Despite recent talk about inequality, changes in income distribution have not driven rising living standards over long periods of time. Rising incomes result from rising productivity. Note that when “productivity” is used alone, it usually refers to labor productivity, but the concept can be applied to other factors of production. We sometimes refer to energy productivity (output per unit of energy used), and factory managers look at the ratio of output produced to raw materials used. In this article we focus on GDP productivity using labor, capital and energy as inputs.