Question

P1. The most recent report from the Department of Labor says: “Nonfarm business sector labor productivity growth was revised to 0.0 percent in the fourth quarter of 2017, as output increased 3.2 percent and hours worked increased 3.3 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2016 to the fourth quarter of 2017, productivity increased 1.1 percent, reflecting a 3.2-percent increase in output and a 2.1-percent increase in hours worked.” Is this result consistent with the historical breakdown of economic growth as discussed in the text? If so, is that good news? If not, is that good news? Explain your answers.

Answer 1

Yes. The results are consistent with the economic growth

The output must grow at a rate gy =n +ga. Where n is the growth rate of population and ga is the growth rate of productivity.

From our data gy =3.2

n =2.1

ga=1.1

This however is relatively a not so good news since the increase in output is on the pretext og incresed work hours and not merely from the increase in productivity. That is the productivity growth in not from technological improvement but due to increased employment. Employment has increaesd which is good but no technological advancement is seen.