productivity is measured by: real gdp millions of workers 0 100120 $7 trillion $8 trillion...
Post on 21-Dec-2015
214 views
TRANSCRIPT
Productivity is measured by:
Employment
Outputoductivity Pr
RealGDP
Millions of Workers
0 100 120
$7 Trillion
$8 Trillion
Employment and Labor Productivity
A B
Slope = productivity = $70,000
Slope = productivity = $66,666
Productivity is given by the slope of a line from the origin to a point on the production function
RealGDP
Millions of Workers
0 100 120
$7 Trillion
$8 Trillion
Shifts of the Aggregate Production Function
1. Increase in the stock of human capital
2. Increase in the stock of physical capital
3. Technical change
AB
productivity = $70,000
productivity = $80,000
H
Enlarging the stock of human capital means
allocating scarce resources for education and
training. There is an opportunity cost for both individuals and
society.
Education and Training
All
oth
er g
ood
s
0
AB
Providing resources for education and training entails a short-run trade-off.
Net investment raises the capital to labor ratio, ceteris
paribus. This boosts productivity
0 Employment (millions)
Rea
l GD
P (
$ T
rill
ion
s)
Capital goods
All
oth
er g
ood
s
0
AB
But production of capital
goods involves trade-offs too
Increase incentives to invest
1. Reduced corporate profit taxes.
2. Investment tax credits
Increase incentives to save:
1. Reduce taxes on capital gains.
2. Tax consumptionGovernment Deficit Reduction
InterestRate
Funds ($ Trillions)
0
An Increase in Investment Demand
I1 = Original Demand for Funds
I2 = New Demand for Funds
3%
5%
1.5 1.75 2.25
InterestRate
Funds ($ Trillions)
0
An Increase in Saving
1.75 2.25 2.5
InvestmentSpending
3%
5%
S1 = Original Supply of
Funds S2 = New Supply of Funds
BF
C
InterestRate
Funds ($ Trillions)
0
Reduction of the Government Deficit
Investment Spending + Deficit
Investment Spending
Deficit is reduced from $.75 trillion to zero
1.0 1.5 1.75
Supply of Funds (Saving)
5%
3%
E A
B
Robert Solow. “Technical Change and the Aggregate Production Function, 1919-1954,” Review of Economics and Statistics, November 1957.
Professor Solow has claimed that about 2/3 of
the growth of real GDP per head in the the U.S. can be
explained by technical innovation
•Steam engine•Electrification•The assembly line•Continuous process manufacturing•The telephone•Internal combustion engine•Air conditioning•Cotton harvester •The transistor•The computer•Electronic data interchange•Robotics•Genetically-modified seeds•Internet browser software
Average
Productivity Growth
Period Per Year (Percent)
1955-1971 2.838
1972-1995 1.665
1996-2005 2.957
Source: Bureau of Labor Statistics
Productivity Growth in the USA
Economists refer to the 1972-95 period
as “the big slowdown”
Index of Output Per Worker Per Hour in the USA (1972 = 100)
20
40
60
80
100
120
140
19
47
19
50
19
54
19
57
19
61
19
64
19
68
19
71
19
75
19
78
19
82
19
85
19
89
19
92
19
96
19
99
20
03
Year
1. Tax credits to provide incentives for private research and development
2. Give incentives to the pursuit of careers in science and engineering
3. Public funding of R & D
4. Legal protections of intellectual property rights—e.g., issuance of patents.
Research and Development
All
oth
er g
ood
s
0
AB
R & D absorbs scarce resources