RSM Part 3
Macro Issues for the Future
What is it? Why matter?
Aggregate output created by production function with inputs of LABOUR (L),
CAPITAL (K), LAND-ENERGY-RESOURCES, TECHNOLIGICAL CHANGE
Changes in inputs (L K L-E-R) don’t account for all growth – tech change calculated
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
•Better on-job training and upgrading (Human Resources input)
•Improvement in production, delivery techniques (Operations
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
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?
•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...
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’/
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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aggregate output created by production function with inputs of labour (l), changes in inputs (l k l-e-r) don"t 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. 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. Labour productivity: capital stock is key contributor, impact can vary widely.