Economic Growth: Productivity

Study Notes

Productivity growth refers to the increase in the output of goods and services per hour of work.
It is a key driver of economic growth and improvement in living standards.
Factors that contribute to productivity growth:
- Technological progress
- Improvements in education and training
- Organizational innovations
- Increased investment in physical capital
- Reallocation of resources to more productive sectors
Measurement of productivity growth:
- Labor productivity: output per hour of work
- Multifactor productivity: output per unit of combined labor and capital inputs

Human capital refers to the knowledge, skills, and experience that individuals possess.
It is a key factor in determining productivity and economic growth.
Components of human capital:
- Education: formal education and training
- Experience: on-the-job training and learning
- Health: physical and mental well-being
- Skills: specialized abilities and competencies
Theories of human capital:
- Human capital theory: education and training increase earnings and productivity
- Screening hypothesis: education serves as a signal to employers of an individual's ability
- Signaling theory: education and training convey information to employers about an individual's quality
Investment in human capital:
- Private investment: individuals invest in their own education and training
- Public investment: governments invest in education and training through subsidies and funding
- Social investment: social networks and institutions invest in education and training

Productivity growth is the increase in output per hour of work, driving economic growth and improving living standards.
Five key factors contribute to productivity growth:
- Technological progress enhances efficiency and output.
- Improvements in education and training increase workers' skills and knowledge.
- Organizational innovations lead to better management and resource allocation.
- Increased investment in physical capital provides more and better tools for production.
- Reallocation of resources to more productive sectors optimizes output.
Productivity growth is measured in two ways:
- Labor productivity measures output per hour of work.
- Multifactor productivity measures output per unit of combined labor and capital inputs.

Human capital refers to the knowledge, skills, and experience that individuals possess, influencing productivity and economic growth.
Human capital consists of:
- Education: formal education and training.
- Experience: on-the-job training and learning.
- Health: physical and mental well-being.
- Skills: specialized abilities and competencies.
Theories of human capital include:
- Human capital theory: education and training increase earnings and productivity.
- Screening hypothesis: education serves as a signal to employers of an individual's ability.
- Signaling theory: education and training convey information to employers about an individual's quality.
Investment in human capital occurs through:
- Private investment: individuals invest in their own education and training.
- Public investment: governments invest in education and training through subsidies and funding.
- Social investment: social networks and institutions invest in education and training.