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intro RSM part 3

Rotman Commerce
Course Code
Michael Szlachta

of 10
RSM Part 3
Macro Issues for the Future
What is it? Why matter?
Aggregate output created by production function with inputs of LABOUR (L),
Changes in inputs (L K L-E-R) dont account for all growth tech change calculated
as residual
Productivity - How much output a country gets from its inputs
Technology or productivity growth More outputs for same inputs adds to
standard of living
Labour Productivity: Measures output per worker or per hour
Affects real wage
Can be affected by capital or other inputs, in addition to technology
Total Factor Productivity (TFP): growth not accounted for by other inputs...
Most useful measure, but most difficult to determine
Productivity matters for profits nationally and in firm (US productivity growth
90s stock market boom)
Future productivity growth key Q in long term economic outlook
Just few tenths of a percent can add billions to GDP, Government
Revenue for use on social programs and corporate profits
Where Does It Come From?
Labour Productivity: Capital stock is key contributor, impact can vary widely
Possible contributors to TFP growth known (but size unclear):
Research & Development
Higher & Lower Edu
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Infrastructure (Roads, Internet)
Industrial Organization; Entrepreneurship
Institutions laws, regulations, enforcement, property rights
Future businesses will be continually hustled by shareholders and gov to
increase productivity
Better on-job training and upgrading (Human Resources input)
Improvement in production, delivery techniques (Operations
Management; Strategy)
Current Puzzles: Have We Shifted to a Higher Productivity Growth Rate?
99-00, appeared to have been large increase in US labour productivity and
TFP starting about 94; centered on IT but had elements in all sectors
presumably due to growth of IT application and Internet (trend was expected
to continue)
BUT, last several yrs:
Early productivity growth has been revised out of US data
Little productivity growth in Ca, much less in US and W. EU
Recent works find more US productivity growth due to capital from
huge investment boom in late 90s (which has now tailed off)
Some concern that US surge partly just measurement (are very difficult in IT
areas). US measures GDP, especially in IT sectors, differently from Europe. Ca
uses same method as US but IT sector is smaller
Why is Ca productivity growth falling so far behind that of US?
Low investment?
High Corporate taxes?
Less entrepreneurship and business edu?
Measurement and size of IT sector?
Reasons for optimism: took long time for electricity and other inventions to
show up in productivity
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Demographics and Baby Boom
Study of populations in an economic context
Not hard to forecast but often catch us unprepared all the same...
Population Growth
SLOWING (birth rate falling)
Total Period Fertility (TFP) avg. No. Births per female over lifetime
Long term replacement about 2.1
Ca, Europe 1.5 +still falling, US now higher
Natural increase falling (Births Deaths). Ca pop. Growth dependent on net
Growth of Labour Force (those available to work, Employed + Unemployed)
slowing even more; much worse in 2020 even with continued rates of
Almost all growth in GDP must come from output per employed person/
labour productivity
Pop. Ageing due to non-uniform distribution (falling birth & death rates)
Baby Boom: cohort born in 1946-1963 when fertility rate was 3-4
Echo: children of boomers creates a 2nd, much smaller bulge in pop.
Thus much more 35-55 then 0-20 or 15-35
Uneven and ageing pop. distribution has implications for:
Marketing (appeal to mid age or older)
Financial markets: more saving for retirement, then more pension
Public Finance: taxes, pensions
Pop. pyramids used to be pyramid shaped, with baby boom and falling birth &
death rates no pyramids now for developed countries
For marketing and ageing issues, need to distinguish:
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