If the labor force increases by 1.1 percent each year and productivity increases by 3.2 percent, how fast will output grow?

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Business

Maximillian Fuentes

27 February, 22:56

If the labor force increases by 1.1 percent each year and productivity increases by 3.2 percent, how fast will output grow?

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Aguilar · Answer 1

4.3%

The trick here isn't to multiply 1.1 by 3.2 which would give you a very incorrect value. The trick is to realize that last year you had 100% of the labor force and this year you have 101.1% of the labor force that you had last year. The same thing applies to productivity. You now have 103.2% of the productivity that you had last year. Now multiply those values. So: 1.011 * 1.032 = 1.043352

Now we can subtract the 100% baseline of output we had last year giving us 0.043352 = 4.3352% growth in output, which when rounding to 1 decimal gives a output growth of 4.3%