If labor and other markets are allowed to function without government intervention, there will be a tendency toward market-clearing prices, including relative wage rates and interest rates that reflect time preferences and the productivity of capital.
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Companies are becoming more efficient, and not just by sacking workers and buying in their needs instead: a study to be released soon shows the overall productivity of capital and labour together rising at 5% a year, says Jose Roberto Mendonca de Barros, the economic-policy secretary.
This lack of capital formation and productivity does not bode well for maintaining jobs today or creating ones tomorrow.
With hours worked stagnant, our main source of growth must come from productivity gains, which depends on investment to raise the ratio of capital to labor.
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Labor productivity and wages depend on the amount of capital labor has to work with.
As average wages in a country are determined by average productivity in that country that lesser amount of capital is going to lead to lower average wages.
In a report on India's economy, the consultancy points out that 43% of India's capital stock is owned by the state, and that the productivity of these assets is well below the Indian average (see chart).
The economy's fundamentals are astonishingly strong--productivity gains of historic proportions, low inventories, growing capital spending and very sound consumer balance sheets (media myths to the contrary).
That surge in productivity was in part a result of an earlier splurge in capital spending on information technology.
Cheerleaders justified the surge in share prices and heavy inflows of capital by praising America's miraculous productivity, or in other ways.
They are much less good at capturing the continuing gains that result from a faster accumulation of capital, or a quickened pace of productivity growth.
And the reason why productivity is so high is because of the vast amount of capital and machinery that each US worker gets to work with.
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The Fed is perversely deploring the extraordinary growth of business capital investments and the resulting surge in productivity.
Unemployment benefits foster an environment of lower productivity and greater prodigality that necessarily make downturns more painful for the capital stock being depleted.
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But he notes that whereas Singapore's success rests on high productivity, Panama's growth has come from accumulating capital in the form of infrastructure.
During this period, major financial crises were conspicuously absent, while capital investment, productivity, and wages grew at rates that lifted tens of millions of working Americans into the middle class.
The productivity push freed up capital for share buybacks, and the stock price jumped an average of 118% a year from 2009 to 2012.
Total factor productivity, which measures how efficiently labour and capital are combined, is only 42% of the level in America, or 82% that in South Korea.
But this idea that all the gains will go to the owners of capital with robots is the same as the statement that all of the gains in productivity in farming would have gone to the farmers.
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