Chapter 16 Outline
A. The Contribution of the Capital-Labor Ratio
1. In the private business sector, the contribution of growth in the capital-labor ratio to productivity has declined steadily.
a. Well over one-half of this decline is because of a slower growth of the capital input rather than a faster growth of the labor input.
B. The Contribution of Technical Change
1. A decrease in the contribution of technical change to productivity accounts for the majority of the slowdown in productivity growth during the 1973-1980 period.
a. From 1973-1980, the contribution of technical change to productivity growth fell to almost zero.
2. Much of the collapse in technical change is unexplained.
a. Some economists feel that the collapse could be due to rapidly increasing oil prices and the rapid and variable inflation that occurred during this period.
3. Since 1980, the contribution of technical change to productivity growth recovered completely in the manufacturing sector and partially in the private business sector.
a. Some people feel that the slower growth of productivity in the private business sector in the 1980s is simply a result of measurement error.
b. Some people argue that the severe foreign competition faced by the manufacturing sector in the 1980s forced these firms to become more efficient. Firms in the service sector did not face the same competitive pressure.
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