Economic productivity is important. Do you actually know what it means?
With labor productivity growth slowing down, let’s go back to the basics
Whether you ascribe to the idea that we’re in the Second Machine Age or entering the Fourth Industrial Revolution, you cannot deny that the world around us is changing at a dizzying pace. Just looking at the products demoed at last week’s Consumer Electronics Show (CES), you’ll learn about AI enabled mirrors or wearable brainwave devices that can improve your focus. So with all this new technology, why is economic productivity actually slowing down?
Before we can begin to answer that question, we need to abandon all of our assumptions around the concept of productivity. By learning more about what productivity actually means and how it is measured, we might have a chance of starting to understand the larger social questions.
What is productivity?
The most basic definition of productivity is the ratio of how much we produce to how much we use to produce it. You can see this illustrated in the simple graphic below. Productivity in the bluejeans industry is the output (typically measured by revenue and finished goods) divided by the inputs (typically measured by the factors of production: labor, land, and capital).
