Chapter 7

This chapter discusses the relationship among changes in productivity, economic output, and significant aspects of societal welfare that are measured by social indicators. There are several conceptual and measurable limitations of productivity that result in the underestimation of real output in official data, although unmeasured output nevertheless increases consumer satisfaction. A flow diagram is used to describe the nature of the relationships among factor inputs, productivity, output, and various measures of well-being. Slightly more than three fifths of economic growth in the past three decades was accounted for by the growth in productivity. Relatively high economic growth during the sixties facilitated a rapid rise in social welfare expenditures, while a slowdown in economic growth in the seventies was accompanied by a slower rate of growth in such expenditures. Deceleration in economic growth in the seventies constrained consumer choice, including individual budget decisions, especially discretionary expenditures. Productivity type analytical ratios can be used to measure the efficiency of a variety of social indicators. Some outputs return to the production process as higher quality inputs in a continuous flow.