The primary components that help determine worker productivity had already been identified. Capital deepening, worker quality, and total factor productivity are the elements that had been used in many past applied productivity work.


In capital deepening, workers are found to be more productive when they have more or better physical capital with which to work. Growth in worker productivity is proportional to the growth in capital per hour worked.

Worker quality means productivity gains are also dependent on the quality of workers: more skills mean higher marginal products. Worker quality is defined as the growth in worker input per hour worked.

Total factor productivity is a catch-all term that captures the impact of technological change as well as the increasing returns to scale, omitted variables, reallocations, and any remaining measurement errors.

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