# 6.21: Measuring Productivity and Growth Rates

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Learning Objectives

• Measure productivity in an economy
• Explain capital deepening and its significance
• Analyze growth accounting studies and the lessons learned from these studies

## Measuring Productivity

An economy’s rate of productivity growth is closely linked to the growth rate of its GDP per capita, although the two are not identical. For example, if the percentage of the population who holds jobs in an economy increases, GDP per capita will increase but the productivity of individual workers may not be affected. Over the long term, the only way that GDP per capita can grow continually is if the productivity of the average worker rises.

A common measure of U.S. productivity per worker is the dollar value per hour the worker contributes to the employer’s output. This measure excludes government workers, because their output is not sold in the market and so their productivity is hard to measure. It also excludes farming, which accounts for only a relatively small share of the U.S. economy. Figure 1 shows that the average amount produced by a U.S. worker in an hour averaged over \$100 in 2011, more than twice the amount an average worker produced per hour in 1966.

According to the Department of Labor, U.S. productivity growth was fairly strong in the 1950s but then declined in the 1970s and 1980s before rising again in the second half of the 1990s and the first half of the 2000s. In fact, the rate of productivity measured by the change in output per hour worked averaged 3.2% per year from 1950 to 1970; dropped to 1.9% per year from 1970 to 1990; and then climbed back to over 2.3% from 1991 to the present, with another modest slowdown after 2001. Figure 2 shows average annual rates of productivity growth averaged over time since 1950.