What is the relationship between productivity and economic growth?
Economic growth, measured by output growth, is often decomposed into two components: that coming from productivity growth and that derived from the growth in inputs, in order to assess the relative importance of productivity growth and input growth. For example, the growth in labour productivity (or output per hour worked) is approximately equal to the difference between output growth and growth in hours worked: We can rewrite this equation as: There are thus two sources of output growth: a) the work effort (measured in terms of the growth in hours worked); and b) the efficiency with which labour is utilised in production. For the period 1961 to 2000, output in the business sector7 in Canada advanced at an annual average rate of 4.0%, reflecting average annual increases of 2.2% in labour productivity and 1.8% in hours worked. Thus, labour productivity growth accounted for over half of total output growth. Figure 1.
