Productivity and Wages
Investment In Physical And Human Capital Must Be Supported By Incentives
By Edward P. Lazear
Edward P. Lazear is Chairman of the President’s Council of Economic Advisers. He is on leave of absence from Stanford University where he is also affiliated with the Hoover Institution. He taught previously at the University of Chicago’s Graduate School of Business. He is an elected fellow of the American Academy of Arts and Sciences the Econometric Society, and the Society of Labor Economists. Also, he is the founding editor of the Journal of Labor Economics and founder of two companies. He developed research and ideas that became the seminal work in the area of “personnel economics,” a field that married economics and statistics to organizational behavior. He has written or edited nine books, authored more than one hundred papers, and has received many academic prizes and awards. He received his A.B. and A. M. degrees from the University of California at Los Angeles and his Ph.D. from Harvard University.
The United States’ output per capita is approximately 30 percent higher than in the developed European countries and Japan, and its productivity growth is among the highest in the world. Much of this record has been due to an environment that fosters growth in human and physical capital and innovation. Maintaining and enhancing this environment is key to the growth we need for our future. Flexibility in the labor force, fostering entrepreneurship, and high levels of education are major contributors to U.S. productivity increases, which have been tracked closely by growth of compensation. Future productivity growth will depend largely on incentives for investment in physical and human capital by appropriate tax policies, continuing a free flow of trade and foreign investment, and making sure that young Americans have the skills necessary to compete in the global economy.
This paper was presented as an address to the NABE annual meeting in Boston on September 12, 2006.