Multifactor Productivity

Sticking with the link between R&D and the economy, Michael Mandel has an article in Business Week about an obscure but important statistic called Multifactor Productivity (MFP).

MFP, as Mandel describes, is a way to measure productivity growth that isn’t attributable to a capital investment such as training or new equipment. Usually it means that there have been innovations that workers can take advantage of, say buying a book online instead of going to the book store. For an employer a rise in MFP means free money – they are getting more output without incurring any additional expense – and this in turns boosts the overall economy.

Mandel goes on to talk about how the proposed cuts to R&D will make it hard to maintain MFP growth. For more analysis check out the CRA policy blog. (There is no permalink so you may have to scroll down.)