Describe the three pillars of productivity growth.

Question

What will be an ideal response?

Answer 1

The three pillars of productivity growth are capital formation, technology, and labor force quality. Each of the three factors can contribute to increases in the amount of output a given labor force can produce. Capital refers to physical means of production, such as equipment, factories, computers, and software. These are the tools with which workers produce output. As the amount of capital available to each worker increases, his or her ability to produce increases as well. Technology is the process whereby new means of using equipment contribute to increasing labor output. Usually new technology is embedded in new equipment, so technological improvement and capital formation are closely linked. Labor force quality improvement, also known as increasing human capital, is a result of education and training. Education usually occurs in schools and colleges, whereas training often takes place on the job at the place of work. Workers with high levels of education usually are more productive and also reap greater benefits from on-the-job training.