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The differences in the living standards around the world are astounding. People in countries with the lowest average incomes earn only about one-twentieth as much as people in high-income countries. The average life expectancy is four-fifths that of the average person in an advanced country. Birth rates are high, particularly for the families where women receive no education, but mortality rates are also much higher there than in countries with good health-care systems. A typical works with but one-sixtieth the horsepower of a prosperous industrialized worker. The people in the 40 poorest countries constitute 55 percent of the world population but must divide among each other only 4 percent of the world income.
What explains these large differences in living standards among countries and over time? Almost all variation in living standards is attributable to differences in countries' productivity. Broadly defined, productivity is the quantity of goods and services produced from each hour of a worker's time. In nations where workers can produce large quantities of goods and services per unit of time, most people enjoy a high standard of living; in nations where workers are less productive, most people must endure a more meager existence. Similarity, the growth rate of a nation's productivity determines the growth rate of average income.
The relationship between productivity and living standard also has profound implications for public policy. To boost living standards, policymakers need to raise productivity by ensuring that workers are well educated, have the tools needed to produce goods and services, and have access to the available technology.
The relationship between productivity and living standard also has profound implications for public policy. To boost living standards, policymakers need to raise productivity by ensuring that workers are well educated, have the tools needed to produce goods and services, and have access to the available technology.
