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One way of measuring the improvement in living standards is to look at how much our productivity in making the goods consumed in the past has improved.
Multiplication of Productivity 1895-2000
Time Needed for an Average Worker to Earn the Purchase Price of Various Commodities
|Commodity||Time-to-Earn in 1895 (Hours)||Time-to-Earn in 2000 (Hours)||Productivity Multiple|
|Horatio Alger (6 vols.)||21||0.6||35.0|
|Cushioned office chair||24||2.0||12.0|
|100-piece dinner set||44||3.6||12.2|
|Cane rocking chair||8||1.6||5.0|
|Solid gold locket||28||6.0||4.7|
|Sterling silver teaspoon||26||34.0||0.8|
Source: 1895 Montgomery Ward Catalogue
The contribution to improved living standards depends on what goods you value and what set of weights you use.
Let's use measured real GDP per worker. In 2000 dollars:
1900 $16,861 2000 $65,034
Real GDP per worker increased by a factor of 4 over the 20th Century. That's a growth rate of 1.4 percent a year.
However, that is surely an underestimate of the improvement in living standards.
If we use the Boskin Commission estimate that unmeasured improvements in quality and the invention of new goods and new types of goods have led standard measures to understate true economic growth by 1 percent a year, then (in 2000 dollars):
1900 $6,203 2000 $65,034
Living standards have improved 10 1/2 times during the 20th Century. That's without adjusting for the decline in the working year.
What are the reasons for this tremendous improvement in living standards?
Economic growth is an increase in output.
The production function describes the relationship between the quantity of inputs and the quantity of output.
Y = AF(L, K, H, N)where
The key to rising living standards is an increase in the productivity of labor.
Under certain assumptions,
Y/L = AF(K/L, H/L, N/L)