If capital per hour of labor grows by 3 percent a year and labor productivity grows by 2.5 percent a year, the one third rule says that the growth in labor productivity can be divided so that capital growth accounted for percentage points and technological change accounted for percentage points.

Question

Quizplus · Accepted Answer

According to the one third rule, one third of the growth in capital per hour of labor (3% * 1/3 = 1%) contributes to labor productivity growth, so technological change accounts for the remaining 1.5% (2.5% - 1%).

If Capital Per Hour of Labor Grows by 3 Percent