Key points
- Higher productivity allows wage growth without inflation.
- Technology and capital investment boost productivity.
- Productivity slowdown limits potential GDP growth.
Example
If output rises 3% while hours worked rise 1%, productivity gains 2%, enabling wage growth with less pressure on prices.
In history
US nonfarm productivity was first reported to have fallen at a 7.5% annualised rate in Q1 2022, the steepest drop since 1947, before recovering through 2023.
Related terms