This chapter shows that employment growth in the U.S. economy has been much faster than in many other advanced countries. Productivity growth and real wage growth have lagged. It disputes the idea that the U.S. economy has somehow lost out to other economies, particularly because employment has grown rapidly.
Partly as a consequence of the rapid employment growth, productivity growth and real wage growth have been slow. Part of the slow productivity growth has resulted from a slowing of technical change. Students may be surprised, however, to learn that productivity growth and technical change in the manufacturing sector increased rapidly in the 1980s.
The chapter points out that the United States is in control of its economic destiny. Individuals, of course, always have the option of saving and realizing a return to savings in the future. Similarly, as a society, we can increase our saving and investment. If we do, we will have more rapid productivity and wage growth in the future.
| Some students will be surprised to learn that hourly productivity in the United States is much higher than in Japan. It is true that productivity growth is lower in the United States, but to a certain extent, it is natural that economies with lower productivity will have faster productivity growth than economies with higher productivity. The chapter concludes that there is no reason to think that productivity growth in other countries comes at the expense of productivity growth in the United States.
| Instructional Objectives |
| After completing this chapter, your students should know:
1. That the value of the marginal product of labor underlies the demand for labor.
2. That increases in aggregate labor supply cause employment growth in a fullemployment economy.
3. That productivity growth depends upon growth in the capital-labor ratio and technical change.
4. That productivity growth is the main determinant of real wage growth.
5. The reasons why productivity growth has declined in the United States.
6. That productivity growth is lower in the United States than in many other advanced countries, but that productivity levels are higher.
| Terms from Previous Chapters |
| You should review terms in this section at the beginning of your discussion of the chapter.
production possibilities (Chapter 1)
opportunity cost (Chapter 1)
marginal cost (Chapter 2)
marginal benefit (Chapter 2)
division of labor (Chapter 1)
inflation (Chapter 13)
| Key Terms |
| These terms are introduced in this chapter:
labor productivity
labor force participation rate
marginal product
law of diminishing marginal product
land
labor
capital
production possibilities curve
best technology
technical progress
technical efficiency change
capital-labor ratio
technical change
| Additional References |
| In addition to the references in the text, instructors may wish to read or assign one or more of the following.
1. "American Growth: More than Meets the Eye," The Economist 91 (December 26, 1992).
2. Barry Bosworth, George L. Perry, and Matthew D. Shapiro, "Productivity and Real Wages: Is there a Puzzle?" BrooMngs Papers on Economic Activity (1994), pp. 317-344.
3. Stanley Fischer, "Symposium on the Slowdown in Productivity Growth," The Journal of Economic Perspectives 2 (Fall 1988), pp. 3-97.
4. Charles R. Hulten, "Is the U.S. Economy in Decline?" The American Enterprise 1 (May/June 1990), pp. 62-69.
5. Paul Krugman, "The Myth of Asia's Miracle," Foreign Affairs 73 (November 1994), pp. 62-78.
6. Robert Samuelson, 'The Rediscovery of the U.S. Economy," Newsweek 123 (February 28, 1994), p. 67.
7. Karl Zinsmeister, "Shadows on the Rising Sun," The American Enterprise 1 (May/June
1990), pp. 52-61.
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