214 PART • Producers, Consumers, and Competitive Markets outstripped the growth in demand, prices, apart from a temporary increase in the early 1970s, have been declining Hunger remains a severe problem in some areas, such as the Sahel region of Africa, in part because of the low productivity of labor there Although other countries produce an agricultural surplus, mass hunger still occurs because of the difficulty of redistributing food from more to less productive regions of the world and because of the low incomes of those less productive regions Labor Productivity • labor productivity Average product of labor for an entire industry or for the economy as a whole • stock of capital Total amount of capital available for use in production • technological change Development of new technologies allowing factors of production to be used more effectively Although this is a textbook in microeconomics, many of the concepts developed here provide a foundation for macroeconomic analysis Macroeconomists are particularly concerned with labor productivity—the average product of labor for an entire industry or for the economy as a whole In this subsection we discuss labor productivity in the United States and a number of foreign countries This topic is interesting in its own right, but will also help to illustrate one of the links between micro- and macroeconomics Because the average product measures output per unit of labor input, it is relatively easy to measure (total labor input and total output are the only pieces of information you need) Labor productivity can provide useful comparisons across industries and for one industry over a long period But labor productivity is especially important because it determines the real standard of living that a country can achieve for its citizens PRODUCTIVITY AND THE STANDARD OF LIVING There is a simple link between labor productivity and the standard of living In any particular year, the aggregate value of goods and services produced by an economy is equal to the payments made to all factors of production, including wages, rental payments to capital, and profit to firms Consumers ultimately receive these factor payments in the form of wages, salaries, dividends, or interest payments As a result, consumers in the aggregate can increase their rate of consumption in the long run only by increasing the total amount they produce Understanding the causes of productivity growth is an important area of research in economics We know that one of the most important sources of growth in labor productivity is growth in the stock of capital—i.e., the total amount of capital available for use in production Because an increase in capital means more and better machinery, each worker can produce more output for each hour worked Another important source of growth in labor productivity is technological change—i.e., the development of new technologies that allow labor (and other factors of production) to be used more effectively and to produce new and higher-quality goods As Example 6.3 shows, levels of labor productivity have differed considerably across countries, as have rates of growth of productivity Given the central role that productivity has in affecting our standards of living, understanding these differences is important