[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Internet Connection
HOW FAST IS MODERN ECONOMIC GROWTH?
Measuring the rise in per capita income is one way to assess
economic growth and rising living standards, but another way
is to ask how many hours a typical worker must work in order
to purchase some specific good. For example, in 1895, the
average worker needed to work 44 hours to earn the income
necessary to purchase a set of dishes—today, it takes only
about 3.6 hours. Brad DeLong, a professor at the University
of California, Berkeley, provides further examples of how one
can compare today’s living standards to those of the past at
www.j-bradford-delong.net/Comments/FRBSF_June11.html
as he addresses the question, How fast is modern economic
growth?
raise their income only by having both spouses working, for instance—reduction in
leisure also leads to increased strain. In this case, to focus on the income increases
alone would exaggerate the rise in living standards.
The critical role played by productivity growth in improving living standards
accounts for the attention that has been given to the speedup in productivity growth
since the mid-1990s. Many commentators argue that the tremendous advances in
computer and information technologies in recent years will contribute to higher
productivity growth and rising standards of living.
To understand these fluctuations in productivity, we need to understand what
causes increases in output per hour in the first place. There are four key factors:
saving and investment, education and the quality of the labor force, the reallocation
of resources from low- to high-productivity sectors of the economy, and technological
change. The following sections discuss each factor in turn.
THE CAPITAL STOCK AND THE ROLE OF
SAVING AND INVESTMENT
Workers today are much more productive than they were one hundred or even
twenty years ago. One important reason is that they have more and better machines
to work with. An American textile worker can produce far more than a textile worker
in India, partly because of the differences in their equipment: in India, handlooms
similar to those used in America two hundred years ago are often still employed.
The amount of capital per worker increases when investment exceeds the amount
of capital that depreciates. Depreciation is the amount of capital that wears out or
becomes obsolete. Higher levels of investment relative to GDP increase the capital
stock and result in more capital per worker, a process that economists call capital
deepening. As capital per worker increases, the amount of output that each worker
can produce increases. In Chapter 24, we introduced the concept of the aggregate
590 ∂ CHAPTER 27 GROWTH AND PRODUCTIVITY