Productivity

The Bureau of Labor Statistics (a unit of the US Department of Labor) reported that the productivity grew at 1.6% in the 4th quarter of 2006.

What is Productivity and how is it important to the economy?

The Labor Productivity is the amount of output created per unit input used. The output is the goods produced and the services rendered. The input is the labor cost. The factors that cause the increase in productivity are 1.) The Technology. (automation and computerization) 2.) Workers comfort (such as good health).

Productivity is different from efficiency – the higher output is called increased productivity, the lower input used is called efficiency.

The higher prodcitivity also causes the decline in inflation because the unit labor costs decreases.

In 1990’s due to proliferation of PCs/Internet in work space (Do computers help the economy?), the productivity went up to 2.7% – a percentage point higher than what it used to be. That led to the largest expansion of the economy and the rise in stock market.

This graph shows the productuity growth from 1990 to 2006

In this article in Business Week, the author Michael Mandel riases concerns about the falling productivity and it’s effect on the economy.

Further Reading:

• How Productive Are We?
• Pructivity Report – Productivity in Industry and Government
• The New “Productivity Paradox”
• Productivity – What is it and Why do we care about it?
• The saving and investment in the rise and fall of the NEW economy
• Productivity in the 21 Century
• Exploding Productivity growth: Context, Causes and Implications