Wednesday, July 26, 2017

Thinking About Low Productivity Growth And Human Welfare Growth

Adair Turner is a good thinker.  He asked himself an interesting question and he shared his thoughts about an answer to his question.  Productivity growth in Britain today is about the same as it was in 2007.  Turner tried to explain low productivity growth in this article; he also imagined how the relationship between productivity and human welfare might change over the course of time.  

We are familiar with a huge transition in our economy that has been completed.  We moved from an agricultural economy in which most of the labor force was required to produce food to an industrial economy.  Productivity improved dramatically in agriculture.  Only a small percent of our workforce is required to produce food.  Moreover, manufacturing technologies enable firms to substantially increase output per hour of labor.  Employment growth has shifted to a variety of service occupations that don't lend themselves to higher output per unit of labor.  He also discussed the growth in sum zero activities.  They occur when most of our essential goods and services have been satiated.  They don't contribute to human welfare growth.  We also experience some growth in human welfare that is not counted in GDP.  For example, computers and the Internet enable us to purchase commodities with less effort.  We can also enjoy games and other forms of entertainment that are essentially free.  There has also been an extensive growth in intermediate services that don't count in GDP.  For example,  commercial lawyers are used extensively by businesses but they are intermediate costs that don't contribute to the final products that are counted in GDP.  The bottom line, according to Turner, is that we may not see much growth in productivity but that may be inevitable as our economy transform itself.  We should be more concerned about the growth in services that do not contribute to human welfare.  For example, the services by financial intermediaries which account for a growing share of GDP. 

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