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Innovative policies for sustaining productivity
Today’s productivity slump may suggest that we are simply not innovative enough.
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Productivity growth is crucial for economic development, because all of its determinants affect standards of living. (Shutterstock/File)
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roductivity growth is crucial for economic development, because all of its determinants affect standards of living. This is even more relevant for developing economies. The average worker in South Korea today, for example, needs to work only about 15 weeks to live at the annual income level of the average worker in 1967, which was made possible largely by technological progress.
The quest for a better standing of living entails a detailed exploration of ways for an economy to sustain its productivity growth. The effort necessitates multiple facets of many factors, including their long-term dimensions. Failure to reinvigorate productivity growth continuously comes with insupportable costs.
A recent prediction by the International Monetary Fund shows that the current productivity slowdown has shut down the opportunity for advanced economies to add another 5 percent to their overall gross domestic product (GDP). This would be similar to adding another Japan to the global economy.
Capital intensity, the amount of capital per worker, and total factor productivity (TFP), which measures the amount of value added derived from all involving factors of production, are the most crucial determinants of sustainable (labor) productivity growth in the long run.
