Technological Knowledge

A fourth determinant of productivity is technological knowledge the understanding of the best ways to produce goods and services. A hundred years ago, most Americans worked on farms because farm technology required a high input of labor to feed entire population Today, thanks to advances in the technology of farming, a small fraction of the population can produce enough food to feed the entire country. This technological change made labor available to produce other goods and service Technological knowledge takes many forms. Some technology is common knowledge-after one person uses it, everyone becomes aware of it. For example, once Henry Ford successfully introduced production in assembly lines, other car makers quickly followed suit. Other technology is proprietary-it is known only by the company that discovers it. Only the Coca-Cola Company, for instance, knows the secret recipe for making its famous soft drink. Still other technology is proprietary for a short time. When a pharmaceutical company discovers a new drug, the patent system gives that company a temporary right to be its exclusive manufacturer. When the patent expires, however, other companies are allowed to make the drug All these forms of technological knowledge are important for the economy’s production of goods and services It is worthwhile to distinguish between technological knowledge and human capital Although they are closely related, there is an important difference. Technological knowledge refers to society’s understanding about how the world works. Human capital refers to the resources expended transmitting this understanding to the labor force. To use a relevant metaphor, knowledge is the quality of society’s textbooks, whereas human capital is the amount of time that the population has devoted to reading them Workers’ productivity depends on both.

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