ECONOMICS - Productivity Improvements Essential to Healthy Economies

Each country’s economy in the world benefits when its productivity grows. Investing in infrastructure, efficient automation, and information technology are examples of actions that often drive growth in productivity over time, and provide meaningful gains in the standard of living across each economy.

Currently, despite the economic downturn in the U.S., productivity (worker productivity, measured in output per hour) continues strong, growing at a rate of 2.5% since the end of 2007. Typically, in a period of economic weakness, productivity declines.

To quote the Wall Street Journal (Aug. 4), “That productivity is staying strong even in bad times has important implications for economic growth, inflation, employment and, ultimately, living standards. Strong productivity growth, by countering inflation from energy and commodities, allows the central bank to keep interest rates lower than it otherwise might, helping it stoke the economy.”

In the U.S., “the productivity improvement is being driven by a shift from less productive domestic sectors like home building into exporting industries, which tend to be highly efficient.”

Ribero and Crane hope that other countries will continue to focus on productivity improvement, especially as the world economy appears to be slowing. It will prove to be the smart thing to do!