1. Productivity & Economic Growth
Why Productivity Matters!

2. GDP & Standard of Living
Standard of living depends on a country’s ability to produce goods & services
Real GDP per person has ↑ 2 % per year in USA over last 100 years!
To ↑ Standard of Living
PPF curve must shift right!
Productivity per worker must rise!

3. Productivity
Productivity the amount of output (goods & services) produced from a unit of input (labor, physical capital, etc)
↑ productivity => ↑ standard of living (rising wealth)
Productivity
(efficiency) ↑
More goods produced with same resources
Standard
of Living

4. Law of Diminishing Returns of Capital
As supply of physical capital rises, the extra output produced from an additional unit of physical capital falls.
Output
per worker
An economy has a
high level of physical capital, an
extra unit leads to a small increase in output 1
Bottom Line:
It is very hard for USA
to increase Productivity
An economy with a low level of physical capital, an
extra unit leads to a large increase in output. 1
Physical Capital per worker

5. Determinants of Productivity
Factors of production determine productivity:
Labor
Physical capital
Human capital
Natural resources
Technological knowledge
Are Robotics are future?
USA has led the
world in technology/
Internet
Led to strong GDP growth
in 1980’s & 90’s

6. Encourage = PROVIDE INCENTIVES to:
GDP & Gov’t Policy
Gov’t policies to raise productivity:
Encourage saving & investment
Encourage investment from abroad.
Encourage education/training
Establish property rights & political stability
Promote free trade
Promote research and development
Encourage = PROVIDE INCENTIVES to:
start new business
improve human capital
raise productivity

7. Real Growth Per Worker
GDP Per Worker %
(per capita) Growth Rate - -