Chapter 2. A Productive Workforce

Both expanding population and rising productivity boost economic growth, but only the latter raises the standard of living. Productivity growth paves the way for increased real compensation (i.e., wages and benefits) for American workers. Labor productivity is defined as the ratio of real output to the number of labor hours required as input, and indexes of labor productivity measure its change over time.

Multiple factors can raise workers’ productivity. Two factors—workers’ skills and efforts—are a direct reflection of the workers themselves. Other important factors include the effects of research and development and capital investment (in other words, the development and incorporation of technological change), the organization of production, and changes in managerial skills. Resource allocation also can affect overall productivity growth. If, for example, resources are shifted away from low-productivity industries to high-productivity ones, a nation’s overall productivity level will rise.

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