The Free Lunch Statistic

Michael Mandel

Economists are fond of saying that there's no such thing as a free lunch. That of course is ridiculous, because our entire prosperity is based on the fact that technological change can boost output far more than investment in human and physical capital would sustain. The benefits of the free lunch go to those who work smarter.

The government even publishes the free lunch statistic--otherwise known as "multifactor productivity". Multifactor productivity is the growth in output in excess of the contribution from labor and physical capital. The latest multifactor productivity calculations came out from the Bureau of Labor Statistics on March 23 (here).

The report shows that from 2000-2004, output per hour (labor productivity) rose at a 3.6% annual rate, a very good performance. Out of that, 1.2 percentage points came from capital, 0.5 percentage points came from improvements in the quality of labor, and a whopping 1.9 percentage points, or more than half, came from multifactor productivity.

Multifactor productivity is the big reason why the U.S. has been able to prosper relative to other countries that have much higher savings and investment rates. In essence, it represents the core of growth--the most important statistics that no one knows.