Productivity and Long-Run Growth
Why output per hour decides living standards over decades: how growth splits into more work and more productive work, the three sources of productivity, the record of fast and slow decades in the US, how productivity links to wages and inflation, and why fast economic growth hasn't reliably meant high stock returns.
The short version
Over decades, an economy grows by adding workers and by getting more out of each hour of work. US output per hour has grown about 2.1% a year since 1948, but at very different speeds: 2.8% a year to 1973, 1.4% to 1995, 3.0% to 2005, then 1.5%. BLS splits productivity growth into more capital per worker, a more skilled workforce, and total factor productivity, the part that comes from better methods. Small differences compound: at 1% a year, output per hour rises 42% in 35 years; at 2%, it doubles. Across countries, faster growth hasn't meant higher stock returns, because much of the gain goes to workers, consumers, and new firms.
By the end of this lesson, you'll be able to
- Split economic growth into growth in hours worked and growth in output per hour, and explain the three sources of productivity growth
- Describe the fast and slow periods of US productivity growth and why small differences compound
- Explain the links between productivity, wages, and inflation, and why economic growth doesn't guarantee stock returns
Why this matters
Over a few quarters, the economy's path depends on spending, interest rates, and shocks. Over decades, it depends mostly on how much each hour of work produces. US real GDP per person was about $15,200 in 1947 and about $71,200 in mid-2026, measured in 2017 dollars: 4.7 times as much.1 Since 1948, output per hour in the nonfarm business sector has grown about 2.1% a year, a little faster than GDP per person, so the gain came from more productive hours rather than more hours per person.2 This lesson looks at where that growth comes from and what it does and doesn't mean for investors.
Two ways to grow
An economy's output is the hours people work times what each hour produces.
Output growth ≈ Growth in hours worked + Growth in output per hour
Hours grow with the population and with the share of people who work, both of which have limits. Output per hour, called Labor productivity. Output per hour of work: the goods and services produced compared with the hours used to produce them. Glossary, compares the goods and services produced with the number of hours used to produce them.3 It has no fixed ceiling, and over long periods it has done most of the work.
The US record
| Period | Average yearly growth |
|---|---|
| 1948 to 1973 | 2.8% |
| 1973 to 1995 | 1.4% |
| 1995 to 2005 | 3.0% |
| 2005 to 2019 | 1.5% |
| Late 2019 to mid-2026 | 2.1% |
| 1948 to mid-2026 | 2.1% |
Bureau of Labor Statistics figures; period boundaries are chosen to show the main shifts.2 The long average hides long stretches well above and below it. A BLS analysis of the most recent slowdown found that labor productivity grew 3.3% a year from 1997 to 2005 and 1.4% from 2005 to 2018, and it pointed to the rapid growth and later moderation of the computer and electronic products industry as a major factor.4
Small differences compound
| Growth per year | Output per hour after 35 years | Years to double |
|---|---|---|
| 1.0% | 1.42 times | About 70 |
| 1.5% | 1.68 times | About 47 |
| 2.0% | 2.00 times | About 35 |
| 3.0% | 2.81 times | About 23 |
A quick rule: 70 divided by the growth rate gives roughly the years needed to double. The gap between the 1973 to 1995 pace and the 1995 to 2005 pace is the gap between doubling in about 50 years and doubling in about 23.
The rest of this lesson is for members
Still to come in this lesson: Where productivity comes from, Productivity, wages, and prices, Growth and investors, the key takeaways, and 2 quiz questions with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- GDP and How It Is MeasuredEconomics for Investors (depth track)
- Costs, Scale, and ProfitEconomics for Investors (depth track)
- Developed and Emerging Markets coming soonInternational Investing and Currencies (depth track)
- What Drives InflationEconomics for Investors (depth track)
Notes and sources
- Federal Reserve Bank of St. Louis (FRED), from the U.S. Bureau of Economic Analysis. Real gross domestic product per capita (A939RX0Q048SBEA), quarterly, chained 2017 dollars. Checked 2026-10-14. Back to text
- Federal Reserve Bank of St. Louis (FRED), from the U.S. Bureau of Labor Statistics. Nonfarm Business Sector: Labor Productivity (Output per Hour) for All Workers (OPHNFB), quarterly. Checked 2026-10-14. Back to text
- U.S. Bureau of Labor Statistics. Productivity: Questions and Answers. Checked 2026-10-14. Back to text
- U.S. Bureau of Labor Statistics. Shawn Sprague, The U.S. productivity slowdown: an economy-wide and industry-level analysis, Monthly Labor Review (April 2021). Checked 2026-10-14. Back to text
- U.S. Bureau of Labor Statistics. Total Factor Productivity, 2025 (released March 19, 2026). Checked 2026-10-14.
- Federal Reserve Bank of St. Louis (FRED), from the U.S. Bureau of Labor Statistics. Private Nonfarm Business Sector: Total Factor Productivity (MFPNFBS), annual. Checked 2026-10-14.
- Pacific-Basin Finance Journal. Jay R. Ritter, Economic growth and equity returns, Pacific-Basin Finance Journal 13 (2005), author's copy. Checked 2026-10-14.