logical change, either new or improved products or improved processes of production.
The first factor—increases in productivity due to higher inputs—would include the improved education, training, and skill acquisition of labor as well as higher quality and quantity of complementary factors such as capital and resources. For example, increased levels of education of the workforce improve the quality of labor inputs and thereby increase output per hour worked. Changes in the quantity of inputs would be the first important channel through which an aging population could change productivity. As the workforce ages, it becomes more experienced, and greater experience is generally associated with higher earnings and productivity. But an aging workforce might also experience deterioration in the relevant skills if job requirements change over time or if people’s skills decline. Some believe, for example, that increased penetration of information technologies into the workplace might place older workers at a disadvantage. This chapter will review below the evidence on how these factors interact in the workplace.
The second factor in productivity growth involves ingredients other than increases of inputs. Called “technological advance,” it also includes advances in knowledge and organization and has a completely different mechanism. Over the long run, technological advance arises from several channels: the generation and diffusion of new scientific, technological, and engineering knowledge and improvements in production processes and social overhead capital. For example, the vast improvements in productivity in computation arose from a long line of technological developments, from transistors to improved communications to programmable software. Innovations in organizational structure and management practices and improved political and legal environments have also fostered significant productivity gains. While technological advance and other changes have played a key role in productivity growth, their rate and direction have varied greatly from decade to decade, and the pattern of change is not well understood.
Studies of productivity growth and technological change emphasize that progress does not typically occur through a grand leap by a single ingenious inventor. Rather, improvements in products and processes are typically the result of many small and unspectacular steps. They result from the application of basic research and engineering, from learning by doing, and from suggestions by workers on the production line.
Clearly, the processes involved in increasing productivity involve both very local forces, such as the skills of individual workers, and more global trends in new and improved technologies and processes. Moreover, economic studies indicate that the second factor—technological advance—is the major contributor to long-run growth in productivity. Depending on