The Magnitude of the Labor Productivity Growth

Being a factor of total productivity, this term mentioned in the title is an important marker for determining the fall or rise of overall growth of economy. Today, therefore, labor productivity is only a statistic number which is reported in governmental agencies.

The interesting thing of this number could be hinged just on the belief related to the number of important things to government policy-makers and economists. It is believed to be linked to overall growth of economy, growth of per-capita income as well as inflation.

The growth of economy

The growth of overall economic as well as the labor productivity growth is certainly relevant to each other. By definition, the total of the growth of work hours added up to growth of labor productivity is the growth of output. (Higher growth of labor productivity means higher growth of output).

The more time is gone by, the clearer this relationship is. For example, the growth of output slowed in the 80s when the growth of labor productivity slowed. When labor productivity in 90s, the growth of output also recovered.

However, there were times both of them were at variance. Many experts believe that this was caused by the forces of business cycle that affect labor’s supply and demand. The swings in workload affect productivity fluctuations.

The growth of per-capita income

Economic books state that the growth of productivity and real wage are equal. For this statement, it appears that the growth of productivity is equal to real per-capita income.

However this is not exact in real terms.

There are a few reasons for this variance. One of them is there is a numerous-ness of goods produced. Additionally, there is a variance between the price of consumer product used in calculating the real incomes and the output price deflator used in calculating productivity.

There is also slippage between the growth of hourly wages and the growth of income per capita due to labor force participation, fluctuations in unemployment and work hours of each person.

Inflation

Experts have posed a question: If inherently inflation is the monetary phenomenon and the growth of productivity is the real phenomenon, why do they have a relationship?

A possible reason that was considered is that the higher inflation rates can distort the price of mechanism. It could, in turn, trigger reduced efficiency through the economy. And inflation can have negative effects on capital accumulation.

Many believe that the opposite may be true. In times of rapid outputs and the growth of real income, it makes monetary authorities easier for imposing anti-inflationary rules.

Until now, economists are not clear on any relationship among inflation and either technological change and capital formation. Similarly, it is claimed that productivity and inflation and may be unrelated.

However, the facts are clear to show the connection between inflation and the growth of productivity. Economics show that the magnitude of the relationship can grow at longer intervals. It seems that the times of the growth of productivity are the same as those of lower inflation.