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1 1 (June 30, 2021)

handle is hein.crs/govedvz0001 and id is 1 raw text is: Introduction to U.S. Economy: Productivity What Is Productivity? Productivity is broadly defined as the ratio of outputs to inputs. Withrespectto the economy, productivity measures how efficiently goods and services can be produced by comparing the amount of economic output with the amount of inputs (labor, capital, etc.) usedto produce those goods. Policymakers are interested in productivity because productivity growth is generally the most consequential determinant oflong-termeconomic growth and substantive improvements in individual living standards. Productivity Measures There are two prominent measures of economic productivity: labor productivity (alsoknownas output per hour) and multifactor productivity (also known as total factor productivity), both of which are producedby the Bureau ofLabor Statistics (BLS). Labor productivity is defined as theratio ofreal(inflation - adjusted) output perlaborhour. The most commonly cited measure oflabor productivity is for the nonfarmbusiness sector. Nonfarmbusiness sector output is defined as gross domestic product excluding outputs fromfarms, general government, nonprofit institutions, paid employees of private households, and rental value of owner-occupied dwellings. Estimates oflabor productivity, across several sectors andindustries, are released quarterly by BLS. Growth in labor productivity depends uponhow real output and hours worked change in relation to each other and is an important factor in the overall economy. Multifactor productivity (MFP) is an alternative measure of productivity that compares realprivate business sector output to the levelofcombined inputs (labor and capital) used to producegoods and services. BLS releases estimates of MFP annually. MFP, unlike labor productivity, differentiates among workers with respectto educational attainment and work experience. Therefore, changes in labor force composition that increase the workers' efficiency (e.g., increased work experience) would not be registered as an increase in MFP, but would be registered as an increase in labor productivity. Measurement Complications Measuring outputs and inputs, and thus productivity, involve challenges. Adjusting nominaloutput figures for inflation can be complicated, especially during periods of rapid technological progress when the introduction ofnew products and services and improvements in their quality complicate measuring inflation. Depending onthe construction of the price index, estimates ofrealoutput nry understate or overstate actual real output. Updated June 30, 2021 Gaps in the data available to BLS also complicate the measurement of labor inputs. Theprimary source oflabor data only includes figures for total number of employees and average weekly hours ofproduction and nonsupervisory workers. BLS has to estimate the number of hours worked by nonproduction and supervisory workers. Additionally, labor hour data for the s elf-employed and unpaid family workers must be forecasted fromIRS data that lags by about three years. BLS faces additional challenges when determining the value ofcapital inputs for MFP. To calculate MFP, BLS uses the totalv alue of the services provided by productive capital in the economy, rather than the amount of physical capital. BLS uses a number of as sumptions to first determine the levelof productive capitalin the economy by applying depreciation schedules to physical capital based on its age. Then BLS must determine the value of the services providedby thatlevelof capital. Estimates of MFP arelikely less precisethanestimatesoflaborproductivity due to the additional as sumptions incorporated into estimating MFP. Importance of Productivity Growth Productivitygrowthis aprimary driverof long-term economic growth and improvements in living standards. As productivity increases, society can produce more goods and services with the s ame levelofresources, which, allelse equal, increases incomes and access to goods and services, including additional leisure time. Policymakers are also interested because government policies, institutions, andthe regulatory environmentcan impact productivity growth. For example, strong and enforceable patent laws likely encouragecompaniesto invest more in research and development, which contributes to productivity growth, because the laws enable companies to profit from their new technologies and products. Sources of Productivity Growth Growth in outputperhour oflabor can be achieved through three different sources: improvements in the quality of workers (i.e., human capital), increases in the levelof physicalcapital, and technologicalprogress. Human Capital Improvements in the abilities and efficiency of individual workers, often referred to as increases in human capital, allow each individual worker to produce more goods and services per hour, and therefore increase labor productivity. Increases in human capital generally result fromincreased education, workexperience, on-the-job training, and so on. https ://ctsrepurts~conigre&

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