Fiscal Policy, Economic Growth, and Productivity ❮ 135Determinants of Productivity
The determinants of productivity help to explain why some nations have grown at faster
rates than other nations. This short list of determinants provides policy makers with a list
of targets that can help to focus policy on factors that increase a nation’s growth rate.Stock of Physical Capital
Workers are more productive when they have tools at their disposal. Try painting a
house without a brush, digging a hole without a shovel, or writing a term paper with-
out a computer, and you’ll find out how important tools can be to your productivity.
The nice thing about increasing the quantity of physical capital in an economy is that,
in many cases, the capital helps to increase the quantity of more capital. There should
be policies that provide incentives to invest in physical capital. The supply-side policies
described later in the chapter are examples of policies that can increase investment in
physical capital.Human Capital
Labor is a much more productive resource when it has more human capital. Human
capital is the amount of knowledge and skills that labor can apply to the work that they
do. An accountant who takes extra courses so that she can earn her stockbroker’s license
has increased her human capital. A nurse who studies to become a physician’s assistant is
increasing her human capital and becoming more productive. Human capital also includes
the general health of the nation’s labor force. A labor force that has been vaccinated against
debilitating disease can bring more productivity to the nation’s workplace than the labor
force of a nation that has not received these vaccinations. There should be national policies
that provide incentives to invest in human capital. How about subsidies to public educa-
tion to decrease the price to households? Or low-interest federal student loans to help fund
college? Or government agencies to research and promote the general physical and psycho-
logical health of the population?Natural Resources
Productive resources provided by nature are called natural resources. A nation’s stocks
of minerals, fertile soil, timber, or navigable waterways contribute to productivity.
Nonrenewable resources, such as oil and coal, have a finite supply and cannot replenish
themselves. Renewable resources, such as timber and salmon, have the ability to repopulate
themselves. Environmental protection laws are designed to maintain the quality of natural
resources, so the productivity does not rapidly depreciate.Technology
Technology is thought of as a nation’s knowledge of how to produce goods in the best
possible way. Imagine the technological leap that was made when humankind created fire,
or the wheel, or the radio, or the assembly line, or the pizza crust with cheese in the middle.
Amazing stuff! There should be policies that provide incentives to increase the rate of tech-
nological progress. The government’s provision of research grants to university professors
and laboratories helps to further our state of technology.What Do All of These Productivity Determinants Have in Common?
They all require an investment, and funds for investment come from saving. Firms invest
in physical capital and individuals invest in human capital. Nations invest in the con-
servation of their natural resources, and entrepreneurs invest in technological research.KEY IDEA