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Productivity is a key element in analyzing an economy. It demonstrates both the efficiency of industry and the wealth-generating capability of the economy.

Productivity entails the relationship between the quantity of goods and services produced, or output, and the quantity of labor, capital, land, energy, and other resources that produced it, the input.

A commonly used measure of productivity relates output to the input of labor time: output per hour, or its reciprocal unit labor requirements. This kind of measure is used widely because labor productivity is relevant to most economic analyses, and because labor is the most easily measured input. Relating output to labor input provides a tool not only for analyzing productivity but also for examining labor costs, real income, and employment trends.

 

Trends in Productivity Growth

Productivity growth varies among individual industries. Large increases reflect many factors: including new technologies, advanced production methods, and increased output with economies of scale. U.S. Productivity growth has trailed that of other major industrial countries.

The absolute level of U.S. Productivity, unlike its growth trend, is still ahead of that of other major industrial countries. Although the United States has the lowest rate of change in real domestic product per employed person among major industrialized countries, it still has the highest level of gross domestic product per employed person. The gap continues to shrink, however.