Thursday

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 9 The Real Economy in the Long Run
Chapter 25 of 36 Production and Growth
Section 5 of 23
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Explaining the large variation in living standards around the world is easy and can be summarized in one word: productivity — unit of output per unit of input.
We can develop an example of productivity based on the novel Robinson Crusoe, about a sailor marooned on a desert island.
Crusoe catches his own fish, grows his own vegetables and makes his own clothes.
By examining Crusoe's simple economy, we learn lessons that apply to realistic, complex economies.
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Productivity determines Crusoe's standard of living.
Productivity is the quantity of goods produced from each unit of labor input.
In Crusoe’s case the unit is simply the amount of time needed to produce something.
If Crusoe is quick at catching fish, growing vegetables, and making clothes, his standard of living is high.
If he is slow at these, he lives poorly.
Crusoe consumes only what he produces, so his living standard is directly tied to his productivity.
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In the case of Crusoe's economy, we see clearly
· productivity is the key determinant of his living standard
· growth in productivity is the key determinant of his improving living standard
The more fish Crusoe can catch daily, the more he eats.
If Crusoe finds a better fishing spot, his productivity rises.
Any increase in fishing productivity makes Crusoe better off.
He can eat more fish or can spend less time fishing and spend more time producing other goods.
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Productivity's central role in living standards determination is the same for nations as it is for marooned sailors.
Recall an economy's gross domestic product, GDP, simultaneously measures two things
· total income earned by everyone in the economy
· total expenditure on the economy's goods
GDP can measure these two things simultaneously because an economy's income equals an economy's output.
As with Crusoe a nation can enjoy a high standard of living only if its productivity level is high.
This means it produces a large quantity of goods per person in a given time period.
Americans have higher standards of living than people of other nations because American workers are more productive.
We must focus on productivity to understand
· current large differences in countries’ living standards
· changes of a country’s living standards over time
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a country’s standard of living
kuni no seikatsu suijun
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Why does U.S. manufacturing quantity continue to increase as the number of manufacturing workers continues to decrease?
Grok:
U.S. manufacturing output rises while worker numbers fall due to strong gains in labor productivity.
Fewer employees produce more goods thanks to automation, advanced machinery, and efficiency improvements.
Real manufacturing output has grown substantially since the 1980s (roughly doubling in many measures), as employment dropped from ~19.5 million (1979 peak) to around 12.6–12.7 million today.
Recent data shows continued employment declines (e.g., ~108,000 lost in 2025, further losses into early 2026), while industrial production and value-added output have posted gains.
Productivity (output per hour) averaged ~2.1% annual growth over decades, with recent upticks about +2.4% from Q3 2024 to Q3 2025.
Key drivers: robots, CNC systems, AI, capital investments, and a shift to high-value sectors, e.g., semiconductors, aerospace, that are less labor-intensive.
This is standard technological progress in developed economies — not a paradox.
The trend —more manufacturing output and less manufacturing employment— is likely to persist in the U.S. and highly developed countries with further automation and shift to making high-value products, with low value product, labor-intensive production moving to less developed countries