A country’s economy can grow in two ways: by increasing the size of its labor force or by boosting the productivity (output per worker) of that labor. Both contribute to economic growth but only strong productivity gains, not simply expanding the total number of workers, can boost a country’s per-capita output. Strong productivity growth also enables households to achieve the same material standard of living while working fewer hours in paid employment and helps businesses compete more effectively by reducing the costs of producing goods and services.
Counting up everything that a nation makes, known as its gross domestic product or GDP, can provide a good snapshot of an economy’s output. But a more meaningful measure of economic growth is the change in the market value of those items from one year to the next. This measurement takes into account the prices of those goods and the amount of labor required to produce them. Using this measure, economists have found that countries with greater rates of economic growth tend to have more productive economies.
There are many ways to increase a country’s economic growth, from growing its labor force or its capital stock to improving the quality of its workforce or increasing its ability to use those resources and workers. Long-term economic growth generally comes from these types of activities and can occur through investment in physical capital or human capital, technological improvements, or the discovery of new resources.
About the Author
