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Labor Productivity

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Submitted By scheek555
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Labor productivity is used as a measure of total output per hour worked. More specifically, labor productivity computes the amount of real gross domestic product (GDP) produced by an hour of labor (Collinge & Ayers, 2004). For example, suppose the real GDP of the United States (US) economy is $5 trillion and our total force labor of hours worked were 100 billion for 2013. Labor productivity is found by dividing $5 trillion by 100 billion productive hours, equaling about $50 per labor hour.

This week’s lesson presentation suggests that economic growth has been attributed to the effect of technological advances, such as the Internet, on the productivity of labor. Accordingly, technology has a tendency to result in more productive capital and a “blend” of technology and improved capital increases the productivity of labor. Capital formation, which refers to the creation of new capital (Collinge & Ayers, 2004), requires investment. Therefore, to acquire new computers, for example, spending is involved. Collinge and Ayers (2004) state that, “to acquire human capital, individuals invest in themselves (p. 378)”. So by me spending time and money on a college education to acquire project management skills is a case in point.

In addition to understanding the process of capital formation is the comment that funding for investment comes from saving. In general, “the more savings, the more investment” (Collinge & Ayers, 2004, p. 378) and, consequently, increased capital accumulation and economic growth.

In summary, investment and savings in physical capital, technological innovation, and human capital are factors that make the strongest impact on personal labor productivity. Moreover, increasing nationwide productivity can raise living standards in face of an expanding population because more real wages improve education and one’s ability to purchase goods and services.

References

Collinge, R.A., & Ayers, R.M. (2004). Economics by Design: Survey and Issues, Third Edition. Upper Saddle River, NJ: Prentice Hall.

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