Accounting for Labor Productivity Growth

Real GDP per hour worked in the United States grew by 2.17% per year from 1949 to 2009, and capital per hour worked grew at the rate of 2.27% per year during the same years. As we saw earlier, total factor productivity grew at a rate of 1.41% per year. We also saw that total factor productivity growth was the most important determinant of real GDP growth. Is total factor productivity growth also the most important determinant of real GDP per hour worked?

Answer Yes ,total factor productivity growth also the most important determinant of real GDP per hour worked . Example : Y = A*K^1/3*L^2/3 So , whentotal factor productivity gets double , real GDP will also get double . Hence ,total factor productivity growth was the most important determinant of real GDP growth. Real GDP per hour worked = Y/L…

/L = A(K/L)^1/3 In this case also ,when total factor productivity gets double , real GDP per hour worked will also get double . Hence ,total factor productivity growth was the most important determinant of real GDP per hour worked.