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Productivity-improving technologies date back to antiquity, with rather slow progress until the late Middle Ages. Important examples of early to medieval European technology include the water wheel, the horse collar, the spinning wheel, the three-field system (after 1500 the four-field system—see crop rotation) and the blast furnace.
Increases in labor productivity tend to result in higher wages. [6] [7] Productivity growth is not uniform across the economy, however.Some sectors experience high productivity growth, while others experience little or negative productivity growth. [8]
While the computing capacity of the U.S. increased a hundredfold in the 1970s and 1980s, [6] labor productivity growth slowed from over 3% in the 1960s to roughly 1% in the 1980s. This perceived paradox was popularized in the media by analysts such as Steven Roach and later Paul Strassman.
The accounting result is obtained by subtracting the weighted growth rates of the inputs from the growth rate of the output. In this case the accounting result is 0.015 which implies a productivity growth by 1.5%. We note that the productivity model reports a 1.4% productivity growth from the same production data.
According to the law, faster growth in output increases productivity due to increasing returns. Verdoorn argued [4] that "in the long run a change in the volume of production, say about 10 per cent, tends to be associated with an average increase in labor productivity of 4.5 per cent." The Verdoorn coefficient close to 0.5 (0.484) is also found ...
Consider a positive but temporary shock to productivity. This momentarily increases the effectiveness of workers and capital, allowing a given level of capital and labor to produce more output. Individuals face two types of tradeoffs. One is the consumption-investment decision. Since productivity is higher, people have more output to consume.
An explanation of the difference between efficiency and (total factor) productivity is found in "An Introduction to Efficiency and Productivity Analysis". [1] To complicate the meaning, operational excellence , which is about continuous improvement, not limited to efficiency, is occasionally used when meaning operational efficiency.
Okun's law is an empirical relationship. In Okun's original statement of his law, a 2% increase in output corresponds to a 1% decline in the rate of cyclical unemployment; a 0.5% increase in labor force participation; a 0.5% increase in hours worked per employee; and a 1% increase in output per hours worked (labor productivity).