Ebook Productivity: Key to Economic Success

The basic premise of the report is as follows: economic success or well-being can
best be defined by a country or region's living standard, proxied by the level of and trends in per capita real income. High and rising income levels represent economic success while low and falling income levels indicate economic failure. In the short to medium-term, per capita incomes can be increased through an increase in labour input relative to population or through an improvement in terms of trade, that is the relative price a country receives for its exports. But there are limits to possible increases in these variables and hence in the
improvements in living standards they can bring.

The only sustained manner in the long run to increase per capita income is by increasing the amount of output produced per worker, that is by raising labour productivity. From this perspective productivity represents the key to economic success. Economists of all leanings accept this basic relationship between productivity and living standards. Indeed, it is one of the few relationships economists agree on.

The rate of labour productivity growth is thus the driving force behind improvements
in per capita real incomes and seemingly small declines in productivity growth can accumulate into large differences in the pace of living standards improvement. For example, based on the rule of 72, it takes only 24 years to double real per capita income at 3 per cent annual labour productivity growth, but 36 years at 2 per cent, and 72 years at 1 per cent.

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