Factors of the Growth of Productivity

The main components which help us determine the productivity of labor had been identified. Total factor productivity, labor quality, capital deepening are the elements which had been already used in many applied productivity works in the past. In capital deepening today, workers are more and more productive as they have better and more physical capital to work with. The growth of labor productivity is relative to the growth of capital per work hour. The labor quality means that the productivity gains are additionally dependent on the workers' quality: more skills means more marginal products. It is defined usually as the growth of labor per work hour. Total factor productivity means a catchall term capturing the impacts of tech change omitted variables, increasing returns to the scale, reallocations and other measuring errors. Factor #1: Capital deepening It is a gauge which shows the increasing amount of physical capital services currently available to every worker. Because businesses and corporations purchase and invest new structures and equipment, the workforce becomes well-equipped. Therefore, they have ability to produce more. The growth of productivity increases in proportion to capital deepening. Hence, some questions had been addressed by the experts with regard to capital services in different manners. The first question is how to deal with individual assets that are changing over time rapidly. The other question is how to properly group these types of capital in a single number. The questions are the fundamentals of the accuracy of the measurement capital as a productivity factor. Factor #2: Labor quality This reflects the quality and the increase of labor inputs of the changing mix and ever-evolving of workers. Because of the evolving workforce, workers with various skills will be employed at various rates. The change in the composition affects directly how much outputs could be produced from given work hours. For example: As we change, when there is a change of relative wages, companies substitute among a variety of workers. In turn, this changes the workforce's average productivity. Often, this effect is considered a change in the labor quality. The estimation of work hours is easy to calculate just by adding up the work hours of every type of workers. Now the growth rate could be extracted. Every type of workers in this calculation receives identical weights and are treated the same. The construction of the estimation of the aggregate workforce accounting for the composition changers of workers is harder. Rather than simply summing the work hours, the estimation uses weights equal to the marginal products. Factor #3: Total factor productivity In honor of Robert Solow, it is as known as Solow residual and is the capability to produce more outputs from the same amount of input. Hence it is usually consider a measure of tech change. It also reflects other factors such as resources allocations, economies of scale, measuring errors, and growth of disembodied technology as well. It is computed as a residual as well as a catchall term capturing the impact of every factor of the growth which is not measured explicitly by economists. Labor inputs, unmeasured inputs and inaccurately measured capital affect the measured total factor productivity residual.