Tuesday, September 13, 2011

Economic Business Growth

Many Firms in the U.S. have increased output per labor hour significantly in the last couple years. Combined with actual drop in wages, this has boosted profitability for many companies without employment growth.

Economic growth is driven primarily by increases in productivity. Greater productivity allows us to do more work with fewer resources. Productivity growth is important to the firm because it means that it can meet its obligation to workers, shareholders and governments, and still remain competitive or even improve its competitiveness in the marketplace.

 There are essentially two ways to promote growth in output:

a.) increase productivity
b.) bring additional inputs into production.

Adding more inputs will not increase the income earned per unit of input unless there are increasing returns to scale. In fact, in the beginning it is likely to mean lower average wages and lower rates of profit.
Productivity was able to climb 6.9% in the U.S. mainly from strong bottom line growth. Many firms cut a substantial amount of employees and have the remaining ones working twice as hard. The problem with this is it can only be sustained for so long as many employees will eventually burn out. Also when working employees harder for less pay more errors may be made in production because they do not have time to double check any processes. Eventually, a firm also has to hire new employees to increase output and profits.

If the firms begin to rehire employees that were laid off and already have the skills necessary to complete the job then they may be able to sustain a decent amount of productivity growth. However, once they start hiring new employees that have to be trained, productivity growth may slow because of the new added salaries and relatively low production of a novice employee.

At the national level, productivity growth raises living standards because more real income improves people’s ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Innovation and technology will be key to sustain high levels of economic growth and productivity in the U.S. Expect to see more out of the box techniques for marketing and advertising. With companies watching every dime they spend we will continue to see more companies going to digital or internet marketing to constantly track costs and get a better return on investment than previous advertising methods which were difficult to measure results.


1 comment:

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