ECO100Y1 Lecture : Productivity
March 10, 2009
-Innovation leads to higher trade, tax revenue, employment, standard of living
TOPIC
-economic slowdown after 1973
-1973 was peak of Kondratieff cycle
Paul Crewdman-where did the magic go in 1973
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-magic=labor productivity, l}}µ]À]Ç[òó]vu]vuvµ(µ]vP}U](Zv
monitoring labor productivity, might have predicted that there were trouble ahead
-how to bring the magic back?
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-ul]v[õñU>Á][µ]
-Paul Crewdman, bad economics or amateur sociology-reasons for the slowdown
-20 million ppl in China heading back to agriculture
How to get the magic back?
-Economic pain to get magic back-u}ZUÀo}uvUu}P}À[Æv]µUZ]PZÆU
total share of R&D in US was falling
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jobs, more effective education
Problem: benefit of improved education will only be seen 10-20 years down the line-politicians are only
worried about the next election
-tech and space tech. should be licensed to American industry, could be used
Dennison-10.2-Labor productivity
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Labor productivity 48/73 73/76
2.6% -0.6% -3.2%
Total Factor productivity-
Improved resource allocation 0.4% 0.0 -0.4%
Increasing Returns to Scale 0.4 0.2 -0.2%
Legal regulations 0.0 -0.4 -0.4
(more labor inputs for same
Thing)
Tech. Change 1.4 -0.7 -2.1%
-Dominant reason for decrease in labor productivity is tech. change
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1) Research and Development and GDP fell, federal and private sector share in the fall of GDP
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2) No new major tech. aÀvÁu(Zóï
3) Decline in entrepreneurial and workforce ingenuity, inventive process, industries more risk adverse,
labor force were enjoying high incomes
ð/voµ]}v}(P}À[Pµo]}v(more input for output), for health, environment, civil rights-may not
hire the best person for the position
5) high marginal tax rates, disincentive for entrepreneurs to perform, and businesses also
6) inflation inefficiencies, double digit inflation, interest rate increased, limiting wage increase
7) Energy price increase-OPEC price increase for petroleum, less than $3 a barrel to over $20
8) Shift to the service sector, the labor productivity increase in service sector is much lower than in
manufacturing sector, 70-75% of value added is in service sector in industrial countries, hard to measure
labor productivity U]v((]]v]]vP}À[Á}v[}u}Z]PZ}µ]À]Ç
If service sector increases, national productivity growth rate will go down
Van Duijn-10.3
-Part 4- 4th Kondratieff downswing
-1970, OECD(orgniazation of economic cooperative development), what were the forecast rates of
economic growth for industrial countries?
1970=100%, what will 1980 be in rates
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US=5.1%
West Germany=5%
-assumed trends will continues, did not think the trend would break
-Japan only had 1/3 of the total, US and Germany had ½ , major error in forecast
-rise in oil prices may have been the reason, inflation, slow down in investment, innovation
-[òò-73 slower growth in US and Germany, industrial }(]o]v]vZu]íõòì[U]v]v
structural unemployment
1973-oil prices did not end industrial expansions according to Van Duijn
-gradual saturation of many sectors, lack of new major innovation, major growth industries for the past
Kondratieff upswing were mature industries, expansion was minimal, no major new basic innovation
occurring
Support: in US and other industrial countries, manufacturing was the leading sector
51/73 73/79
Output growth Output manufacturing growth
Canada 4.6 4.9 3.2 2.8
Ger 5.7 7.4 2.4 1.5
Japan 9.5 13.6 4.1 2.2
US 3.7 3.8 2.5 2.8
Manufacutring was leading the way down to lower growth rates, all industrial countries have slowdown
-h^(}u[ñò-73, the five leading growth industries of manufacturing were the leading innovators,
rubber and plastic, chemicals, electrical equipment, instruments, paper
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