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Human capital and other costs are real and are the attributable source of service quality improvements over and above wealth inflation, but they do not necessarily involve more use of physical resourcers.
by santiago on Fri Jun 12th, 2009 at 09:56:59 AM EST
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They are more productive, in addition to being better paid.  Much of highly paid escort's renumeration is due to human capital improvements that make her time worth more than the street prostitute's services.  Same with doctors and other service sector work. The introduction of the concept of quality greatly complicates any model of the world which tries to connect physical resources with historical productivity measures.  It turns out that physical resource production and use are just proxy's for the unobservable concept of productivity. (This is similar to the way income is just a proxy wfor well being.) That's why measuring inflation in terms of consumer price indices is so problematic, for example.

You would measure productivity, in terms of service, by the number of people a service worker can serve. But it is entirely possible to measure it in the quality of service provided too. But since quality is a largely subjective concept, how do you really know what part of income increases are due to quality improvements and what part are due to productivity improvements in the non-service part of the economy?

by santiago on Fri Jun 12th, 2009 at 10:12:46 AM EST
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For most service functions, it is relatively straightforward to define a meaningful productivity measure. A doctor gets more productive if his treatment improves the prognosis of his patients more than it did yesterday. A mailman gets more productive if he can deliver more letters. A scientist gets more productive if he generates more new knowledge per work hour (note that "easy to define" is not quite the same thing as "easy to measure").

You can probably find a few professions where it is not easy to define the "output," and therefore is not easy to define "productivity." But they are not going to form a major component of any sustainable economic structure.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 12th, 2009 at 12:00:50 PM EST
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