Economic Perspective: The Key to Faster Economic Growth
“Today’s program looks at the key to faster economic growth. Mike, there’s a wide spread desire to see faster economic growth. The belief is: if the economic growth accelerates then job growth will be stronger, and wage and salaries will rise. How can we get the economy to expand more rapidly?”
“Well let me try to simplify this. There are really two major determinants of a nation’s economic growth. One is expansion in the number of workers; we call that labor supply. The other is an increase in what those workers can produce; we call that labor productivity.”
“Since the end of the Great Recession both of those components have been on the low side, particularly when you look at historical rates. Now the labor supply has been slowing for several years. Growth in the labor supply, I should say, has been slowing for several years due to an aging population, number one, and also due to low birth rates, number two. That’s unlikely going to change. We see that slowing labor force growth all over the western world, even China.”
“So I think the key is going to be improving labor productivity. Now how do you do that? Well you got to have workers work smarter, work harder, be more skilled. You do that with better education, and how to get that, how do you get businesses, for example, to want to move for that. And how do you get businesses to buy the kind of technology and equipment that workers can use to be more productive?”
“Well one of the things, one of the sales points of the tax law, the tax changes, was that the cut in the tax rate, corporate tax rate, and the more generous expensing of business investments is going to cause businesses to improve their investments, improve their technology. That’s going to lead to higher productivity.”
“We’ve already seen, actually, business investment go up. We’ve not yet seen it translate into better labor productivity. So again, keep an eye on that. Hopefully more positive news later.”
Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.