![]() A parent in the paid labor force contributes to GDP one who stays home to take care of children or an aging family member does not, but, if the family hires someone to perform these same duties, that labor would contribute to GDP. ![]() GDP measures the market value of goods and services produced in the country, but it captures only market activity and is not designed to be a measure of economic welfare. Productivity growth allows people to achieve a higher material standard of living without having to work more hours or to enjoy the same material standard of living while spending fewer hours in the paid labor force. Either can increase the overall size of the economy but only strong productivity growth can increase per capita GDP and income. While actually boosting economic growth does reduce future budget deficits, all other things equal, making unrealistic growth claims for one’s policies as a way to offset their cost will understate the adverse impact of those policies on actual future deficits.īroadly speaking, there are two main sources of economic growth: growth in the size of the workforce and growth in the productivity (output per hour worked) of that workforce. They find that a 0.1 percentage point increase in annual economic growth would reduce deficits by roughly $300 billion over a decade, mostly through higher revenues. But GDP is not meant to be a measure of economic welfare, and other considerations are important in fully assessing the costs and benefits of policy changes.Įstimates from both the Office of Management and Budget and CBO suggest that faster economic growth would improve the fiscal outlook. ![]() Broadly shared growth in per capita GDP increases the typical American’s material standard of living.
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