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

residual (i.e., TFP). The decrease in TFP appears responsible for
most of the growth slowdown in the 1970s and 1980s. Third, the
decline in productivity after 1973 was caused, in part, by a decline
in the contribution of capital; but since 1995, increases in capital
have, together with increases in TFP, accounted for the increase in
the growth rate of output. The rapid growth at the end of the 1990s
represented a return to the high growth rates of the 1950s and 1960s
after two intervening decades of slow productivity growth.
These results pose major problems for those involved in longterm
forecasting. Was the rapid growth in the 1959–1973 period an
aberration? Or were the 1970s and 1980s atypical, with the late 1990s
representing a return to the higher growth rates of earlier decades
as fundamentally new technologies, such as computers, came into
wider use? Throughout most of human history, technological change
and economic growth have been rare. From this longer perspective,
the aberration has been the past 250 years of economic growth.
LABOR PRODUCTIVITY GROWTH (%)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
TFP
Labor quality
Capital deepening
1959–1973 1973–1995 1995–2000
Case in Point
CALCULATING TOTAL FACTOR
PRODUCTIVITY IN THE 1990S
Figure 27.8
Between 1995 and 2000, private domestic output in the United States
grew by 20 percent, or 4.6 percent per year. Dale Jorgensen, Mun
Ho, and Kevin Stiroh 1 in 2002 estimated that average labor productivity
grew by 2.36 percent per year over this period—each hour of
labor input produces more output than previously. The accounting used earlier to
explain the contribution of various factors to economic growth also can be used to
explain the sources of this growth in labor productivity.
One of the reasons why labor might become more productive is capital deepening.
According to Jorgensen, Ho, and Stiroh, capital deepening accounted for 1.4
percentage points, or about 60 percent, of the 2.36 percent growth rate of labor productivity.
Figure 27.8 shows that labor productivity growth increased during the
second half of the 1990s, and part of this increased growth can be explained by capital
deepening. But this source of labor productivity growth is still less today than it
was in the 1959–1973 period.
A second source of labor productivity growth is increases in the quality of labor.
Labor quality can increase through education or through shifts in the composition
of the labor force. For instance, in the early 1970s, the baby boom generation entered
the workforce and changed its composition—now more workers were younger
and relatively inexperienced. Such a shift acts to reduce labor productivity. In the
1990s, as these baby boomers gained more work experience and training, the
overall quality of the labor force increased, a change that contributed to rising labor
SOURCES OF LABOR PRODUCTIVITY GROWTH
Growth in labor productivity is due to capital deepening,
increases in labor quality, and increases in total factor productivity.
During the late 1990s, labor productivity growth
increased because of the contributions of capital deepening
and TFP.
SOURCE: D. W. Jorgensen, M. S. Ho, and K. J. Stiroh, “Projecting Productivity
Growth: Lessons from the U.S. Growth Resurgence,” Federal
Reserve Bank of Atlanta Economic Review 87, no. 3 (2002): 1–13.
1 D. W. Jorgensen, M. S. Ho, and K. J. Stiroh, “Projecting Productivity Growth: Lessons from the U.S. Growth
Resurgence,” Federal Reserve Bank of Atlanta Economic Review 87, no. 3 (2002): 1–13.
TOTAL FACTOR PRODUCTIVITY: MEASURING THE SOURCES OF GROWTH ∂ 597