intro lecture notes ch06 productivity

8/3/2019 Intro Lecture Notes Ch06 Productivity

http://slidepdf.com/reader/full/intro-lecture-notes-ch06-productivity 1/6

Economics – Dr. Sauer

Lecture Chapter 6: Productivity and Human Capital

I. Standard of Living Around the WorldMaterial World By Peter Menzel

Snapshot of the Global Economy (2007)

GDP GNI population GNI per capita

(trillions $) (trillions $) (billions) ($)World 54.3 52.6 6.6 7,958

Low income 0.8 0.7 1.3 578

Lower middle income 6.9 6.5 3.4 1,887Upper middle income 6.5 5.7 0.8 6,987

High income 40.2 39.7 1.1 37,566

Low & middle income 14.2 13.0 5.6 2,337

East Asia & Pacific 4.4 2.7 0.4 2,180

Europe & Central Asia 3.2 2.7 0.4 6,051

Latin America & Caribbean 3.4 3.1 0.6 5,540Middle East & North Africa 0.8 0.9 0.3 2,794

South Asia 1.4 1.3 1.5 880

Sub-Saharan Africa 0.8 0.8 0.8 952

US 13.8 13.9 0.3 46,040

EMU 12.2 11.6 0.3 36,329

LDCs 0.4 0.4 0.8 496

Source: World Bank World Development Indicators

II. Productivityis important because a country’s _____________________________ depends on its ability to producegoods and services.

Productivity is the amount of goods and services a worker produces for each hour of work.

Why is America rich?

1



Examples of productivity improving our standard of living:

- hours worked for annual food supply1870 vs today

- average work week

- GDP per capita

Explain The Rule of 72

Productivity growth makes the US richer, regardless of how fast other economies are growing.Productivity growth is not a _________________________.

India Example:

There are 4 main determinants of a nation’s productivity:1. _______________________ is the stock of equipment and structures that are used to produce goodsand services.

2. ______________________ is the knowledge and skills that workers acquire through education,training, and experience.

3. ______________________ are the inputs that are provided by nature.

4. _______________________ is society’s understanding of the best ways to produce.

1. Physical CapitalBecause capital is a _________________________ factor of production, a society can change theamount of capital that it has.

- in order to increase capital, firms must ________________

- firms get money to do capital investment from __________________________

There is an ____________________________ of investing in capital:- use resources to produce capital- can’t use those resources to produce goods or services for consumption now

2



As the amount of physical capital in an economy increases, ______________________ set in.If workers already have a large amount of capital to work with, giving them an extra unit will notincrease their productivity by much.

If workers have only a small amount of capital, then giving them an extra unit will increase their productivity more.

Diminishing returns describes the situation that with more capital, output increases, but at a decreasingrate.

Diminishing returns helps to __________________ why a country like the US grows slowly while acountry like China grows quickly.

An important implication of diminishing returns is the ________________________.

2. Human Capital

encompasses a person’s knowledge, ability, and skills.

___________________ human capital is built through education and training.

___________________ fund public education because a better educated population contributesto faster and sustainable development. (positive externalities)

____________________ invest in employee training because they expect to cover the coststhrough higher profits from higher worker productivity.

_____________________ spend time and money on higher education because they expect to

earn higher wages.

Educational Attainment--People 25 Years Old and Over, by Total Money Earnings in 2008

US Census Bureau / BLS: Current Population Survey, Annual Social and Economic (ASEC) Supplement Table from PINC-03 data

There may not be a return on education if - it is of low ____________________ - the knowledge/skills learned don’t match ______________________

3

When there is __________ capital per worker, anincrease in capital increases output per worker by _______________.

When there is __________ capital per worker, anincrease in capital increases output per work bymuch _________________.

The Catch-Up Effect says that nations that startoff poor tend to grow more rapidly than thosethat start off rich.



- there is ________________ economic growth (low demand for new workers)- workers are ______________________ regardless of skill (centrally planned economies)

Investing in human capital has an ______________________:When students are in class they aren’t producing (this opportunity cost is especially high indeveloping nations)

Even when primary schooling is available, many poor children work instead of going to school.- as _______________________ is eliminated, child labor declines

(There exists a ____________________ gap in education. Many girls do not go to school because of cultural norms, early childbearing, and limited employment opportunities for women.

- as poverty is eliminated, the gender gap remains- national policies are needed to close the gap)

What is the problem that underlies poverty?

HS drop outs vs college grads:

India:

Homeless in US:

Human capital is an economic passport. Explain:

Why are fast food workers paid a relatively low wage?

Explain the relationship between the economy, human capital and the ability to find a good job.

3. Natural ResourcesThe natural resources a nation has can help it to __________________.

A nation can ________________________ for having fewer natural resources by investing in humancapital and physical capital.

Just because a nation has natural resources, it is ______________ guaranteed to grow.

________________ is very important!

4



4. Technological KnowledgeA large contributing factor for why living standards have improved over time has been due to largeincreases in ______________________ knowledge.

- people build human capital- people do research and development- technology advances

III. Other Factors that Influence Productivity- Foreign Investment- Health and Nutrition- Property Rights and Political Stability- Effective Government Institutions- Free Trade- Population Growth

IV. Income InequalityIn the US, the poorest 20% of households were earning only 2% more in 2004 than they were in 1979.

The richest 20% of households were earning 63% more in 2004 than they were in 1979.Explain this using what you’ve learned about human capital.

Explain what is happening to the gap between rich and poor in the US. Why is this happening?

The US economy is evolving in ways that favor skilled workers.Explain:

Explain how international trade makes US workers that are high-skilled better off and can make USworkers that are low-skilled worse off.

Other Factors contributing to the wage gap:Unions:

Hours worked:

Performance pay:

The income gap isn’t worrisome because1)

2)The income gap might be a problem because

1)

5



2)

Final Thoughts:Promoting the factors that play a part in productivity and growth is a _________________ process.Economists ____________ in their views on the role of the government in promoting economic growth. ___________________________________________________________________________________

_ Summary:Productivity is the main determinant of a nation’s standard of living.Human Capital is a major determinant of productivity.

6

intro lecture notes ch06 productivity

Documents