PRODUCTIVITY AND THE AGGREGATE PRODUCTION FUNCTION

Productivity

One of the most important measures of economic performance is productivity. Productivity is a concept measuring the ratio of total output to a weighted average of inputs. Two important variants are labor productivity, which calculates the amount ‘of output per unit of labor. and total factor reciprocity, which measures output per unit of total inputs (typically of capital arid labor).

During the recent economic expansion, the V.S. economy had robust growth in output and productivity. From 1995 to 1999, output in the V.s.business sector grew on average by 4.9 percent per year. During that period, labor hours worked grew by 2.1 percent per year. The difference was the growth of labor productivity, which averaged 2.8 percent over this period.

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