Productivity Growth and Human Development

To what extent is higher productivity important for a country wanting to make significant improvements in their Human Development Index rankings?

Productivity is a measure of the efficiency of factors of production for example measured by output per person employed or the value of output per hour.

In the long run, productivity is a major determinant of economic growth and also of inflation.

A fall in labour productivity leads to a rise in firms’ (unit) costs of production (assuming that the level of wages remains the same)

Higher productivity allows businesses to pay higher wages and achieve increased profits at the same time.

So progress in lifting labour and capital productivity will be important for lower and middle income countries who wish to increase their absolute human development index scores and also their relative position in the rankings.