Productivity

Productivity. For any economic system, including that of the United States, productivity is the key to economic performance. Determining whether nations prosper or languish, productivity measures the rate at which factor inputs—land, labor, and capital—are transformed into output. The term “productivity” actually encompasses two separate but related concepts. “Total‐factor productivity” refers to the relationship between all inputs and output, while “partial‐factor productivity” refers to the relationship between a single factor input and total output.

The relative importance of different input factors to productivity growth has varied over time. In early‐nineteenth‐century America, for example, when the economy was still primarily agricultural, labor accounted for around 60–65 percent of productivity, and land for about 15 percent. By the end of the twentieth century, labor's share stood at around 75 percent, while land's share was well under 5 percent.

Defining a “factor input” precisely is anything but straightforward. The measure of labor input, for example, must take account of the age distribution of the workforce, which in turn serves as a proxy for physical strength, vigor and endurance, and accumulated work experience. It must also take account of the intensity of work effort, which might vary widely from handicraft settings (such as preindustrial America) to a speeded‐up production line. Calculating the labor factor in productivity also involves assessing such intangibles as the skills, education, and willingness and ability to learn and adapt that economists call “human capital.”

In the study of productivity, the term “capital” does not mean money per se. Rather, it refers to the machines and buildings used directly and indirectly in production. Assessing this factor, too, involves consideration of innovations; organizational changes; and the vintages (that is, ages) of machines and buildings, which in turn provides information about wear‐and‐tear and the rate of technical progress.

American economic history—indeed all human economic history—is a product of these forces. For example, the transition from a two‐field system of agriculture (where half the land is kept fallow each year) to a three‐field system (where only one‐third is kept fallow each year) raised land productivity by at least 16 percent, quite apart from increases related to mechanization and crop diversification. The steam engines introduced into Cornish tin mines made possible better‐drained and better‐ventilated mines that could then be dug deeper in search of mineral wealth. Indeed, most productivity improvements had similar multiple spillover effects. For example, the use of water‐actuated trip hammers (capital) in forging iron reduced workers’ fatigue (labor), increasing output while simultaneously producing a superior product.

Not all productivity‐enhancing changes have been desirable from the perspective of human well‐being. For example, the division of labor such as that practiced in Adam Smith's pin factory in the late eighteenth century, and readily introduced into industrializing America, stimulated labor productivity and fostered mechanization by breaking down complex tasks into simple, repetitive operations. This, in turn, however, led to fatigue, production speed‐ups, repetitive motion injuries, and labor deskilling. These unwelcome by‐products of increased productivity became the focus of activism by Progressive‐era social reformers such as Florence Kelley, Josephine Goldmark, and Louis Brandeis.

Some sources of productivity growth, such as patented devices, have been private. Some have been public, involving innovative processes that cannot be kept private, such as “just in time” inventory control. Others have resulted from social factors, such as public education, and improved public health and sanitation or from externalities such as the freer interchange of ideas in more densely settled areas.

A certain portion of productivity growth is unexplained by changes in factor inputs. This, in the words of economist Moses Abramovitz, is a measure of economists’ ignorance. Unfortunately for our understanding of productivity, the increases not explainable by conventional factor‐input analysis accounted for more and more of the economic growth of the late twentieth century.
See also “American System” of Manufactures; Automation and Computerization; Automotive Industry; Business Cycle; Capitalism; Depressions, Economic; Economic Development; Economics; Electrical Industry; Electricity and Electrification; Factory System; Industrialization; Iron and Steel Industry; Labor Markets; Mass Production; Patent and Copyright Law; Steam Power; Technology.

Bibliography

Edward F. Denison , The Sources of Economic Growth in the United States, 1962.
Joel Mokyr , The Lever of Riches: Technological Creativity and Economic Progress, 1990.

Jeremy Atack