Why Is Productivity Growth Important In Our Economy
Why is productivity growth important in our economy? This is the first question that we should be asking ourselves before analyzing its components. Productivity growth is one of the determinants of the growth in wages and living standards in a country. Productivity growth its followed from improvements in the production process. If efficiency increases, output must increase faster than inputs in order to achieve efficiency. Achieving labour productivity growth is a key determinant of long term growth for the economy and if it is slowing down it is a matter of serious concern. The United States as well as other advanced and emerging economies, growth labour productivity has been slowing down significantly over the years. A large amount of explanations
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This was followed by the second period in which there was distinct growth slowdown to 1.6% that lasted for the next two decades. The third period from 1996 to 2003, the US experienced an unexpected growth up to 3.85% caused by the information and communication technology (ICT) boom. The last period lasts from 2003 to 2014. In the pre-crisis years, productivity growth declined strongly to 1.9%. After this during Great Recession conducted to a weak rebound between 2008 and 2010. However since 2011 the rate of growth has been substantially low, 0.5% per year, compared to the past 2.5% long-term growth …show more content…
Moreover, other sectors like education and legal services have strong potential for growth and are not in a position to be measured.
However there is a number of arguments debating this hypothesis. Economists argue that mismeasurment is not the cause of the slowdown.
Firstly, productivity slowdown has affected other countries as well. As presented before, labour productivity growth occurs through improvements in technology, higher value products and services, and better organization in production.
Robert J. Gordon debates the theory of mismeasurement by saying that we have exhausted most of the new innovation technologies so it is inevitably to have slow growth in labour productivity in the future as there will be no more improvement.
On the other side, it is also argued that even if even if technology is still evolving, firms are not able to keep up with it.
Fracking and globalisation
This was followed by the second period in which there was distinct growth slowdown to 1.6% that lasted for the next two decades. The third period from 1996 to 2003, the US experienced an unexpected growth up to 3.85% caused by the information and communication technology (ICT) boom. The last period lasts from 2003 to 2014. In the pre-crisis years, productivity growth declined strongly to 1.9%. After this during Great Recession conducted to a weak rebound between 2008 and 2010. However since 2011 the rate of growth has been substantially low, 0.5% per year, compared to the past 2.5% long-term growth …show more content…
Moreover, other sectors like education and legal services have strong potential for growth and are not in a position to be measured.
However there is a number of arguments debating this hypothesis. Economists argue that mismeasurment is not the cause of the slowdown.
Firstly, productivity slowdown has affected other countries as well. As presented before, labour productivity growth occurs through improvements in technology, higher value products and services, and better organization in production.
Robert J. Gordon debates the theory of mismeasurement by saying that we have exhausted most of the new innovation technologies so it is inevitably to have slow growth in labour productivity in the future as there will be no more improvement.
On the other side, it is also argued that even if even if technology is still evolving, firms are not able to keep up with it.
Fracking and globalisation