ECO100Y1 Lecture : How to Increase Productivity
March 17th, 2009
-Reduced person hours to build cars by 1/3, 1990-2008 increase of productivity in the big 3 car
manufacturers, Toyota and Chrysler-31.5 hrs to build a car, Honda 31.3, Nissan 33, ford 33.8, average
compensation for the big 3 American car maker is higher, Japanese had profits, American had losses
-new development emerging in Asia that will crush the big 3, Indian Car maker-Tata
Peddling Prosperity-
Krugman-10.2
Krugman disliked Thurow,
-Canadian productivity story
Krugman-1973, magic went away, economic growth is magic-labor productivity is magic as well
1991-avg American family income went up by 5%, got that from working longer hours
Two types of economists-Policy Entrepreneurs-offer politicians simple solutions to complex problems,
analysis are flawed-(thurow, prestowitz), wrong solutions
Professors-work on answers, usually at universities
Policy entrepreneurs said countries must be competitive, is Canada going to be competitive, Krugman
says countries are not competitive, industries within the country is competitive
Policy entrepreneurs-countries with lower productivity will not be competitive, will fall backwards,
Krugman-look at comparative advantage, if countries engage in trade with comparative, both achieve
strong trade
Economic war between US, Japan and Germany-Thurow, US decided to lose the battle
Krugman-problem between communitarian and individualistic capitalism
-suppose US demands Japan to increase imports from US, Japan retaliates, US counters
Solution: raise labor productivity in US, increase R&D funds, improve education, encourage US
households to save
-Depression, runaway inflation, and civil war can make a country poor, but only productivity growth can
make it rich
-only way in the long run to increase standard of living is to increase labor productivity
-in 1967, Fortune magazine surveyed American Industry, how much will real wage increase in the next
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Krugman-late 19th century to WWII, labor productivity rose by 1.8% in the US
WWII to 1973-2.8%
1973-1990- less than 1%
Why did productivity growth slow down?
3 different stories that account for slowdown in US
1) Technological factors-no new basic technologies, except computers in the IT sector is coming
forward, but it takes a long time for a major new technology to have a major impact-industrial
revolution-textile innovation, takes years for real wage to increase
2) Sociological explanation-decline in education standards in the US, education standards was
falling, motivation is not the same, between 1960 and 1990, public school students increase by
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10% in school, increase in teachers in the same period 70%, the end product, high school system
is still poorly educated,
3) Political explanation-Z]PZÆU]PPP}À[]vÀ}oÀuvUo}]vv]À(}vvµ
due to higher taxes become more risk averse, workers choose leisure time, spend minimum
time at job, more regulation-anti-labor productivity, more hours for the same task
How does Krugman bring the magic back?
US had 2 key problems-low productivity and rising poverty(income distribution problem)
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improve education, improved funding for R&D, encourage savings
After EXAM
Canadian Productivity
-2 deficits w/respect to US
-1st deficit-standard of living deficit between Canada to US, GDP per capita (Martin-prosperity gap)
2nd gap-labor productivity gap, Manufaturing, Business sector(private) and total economy (all sectors)
-the two deficits are related
-using 2006 dollars, US GDP per capita is 52,900 CAD, Canada 44,100 CAD,GAP is 8800, gap is widening
through the new century
-the 2020 program of the institute, is closing the GAP to 1981 levels, to $3000 , in order for that to
happen, the average Canadian household would have $7800 more disposable income each year, CDN
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lower productivity growth in Canada, lower standard of living in the future
Institute of Competitiveness and Prosperity-Martin-we are concerned that the stealthily slow drift of
underachievement could erode our economic strength, most Canadians remain unaware of the problem,
doing nothing is not a worthy option
Canadian manufacturing labor productivity vs. US manufacturing labor productivity
1977- 89.8 Canada-100 is US
1982-79.5 Canada-100 is US
1989-78.1
1998-72.2 twidening gap
Manufacturing to new century 2000-2006, index in US went from 100 to 135, in Canada went from 100
to 104, US growth rate of manufacturing productivity was 5.5% per year, Canada was 0.6%
1981-1998-Canadian productivity was 2.2%, US 3.1%, Japan 3.6%, Germany 2.9%
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US Can
96-2000 2.6 2.8
2001 2.2 1.0
2002 4.8 1.2
2003 4.5 1
2004 4.0 0
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Document Summary
New development emerging in asia that will crush the big 3, indian car maker-tata. Krugman-1973, magic went away, economic growth is magic-labor productivity is magic as well. 1991-avg american family income went up by 5%, got that from working longer hours. Two types of economists-policy entrepreneurs-offer politicians simple solutions to complex problems, analysis are flawed-(thurow, prestowitz), wrong solutions. Policy entrepreneurs said countries must be competitive, is canada going to be competitive, krugman says countries are not competitive, industries within the country is competitive. Policy entrepreneurs-countries with lower productivity will not be competitive, will fall backwards, Krugman-look at comparative advantage, if countries engage in trade with comparative, both achieve strong trade. Economic war between us, japan and germany-thurow, us decided to lose the battle. Suppose us demands japan to increase imports from us, japan retaliates, us counters. Solution: raise labor productivity in us, increase r&d funds, improve education, encourage us households to save.
