Productivity Increases

Finally, a good sign. Labor productivity has increased faster than the costs for more labor, this has resulted in higher employment for February and lower unemployment claims.

Macroeconomic theory would guide us through the following thought process. An increase in labor productivity would shift the production curve (RGDP as a factor of labor) upward. The increase in output would also shift the aggregate supply to the right, increasing economic growth under Classical assumptions. But, there's another hidden effect. An increase in productivity of workers makes them more profitable to employers, thus firms will demand more labor in the labor market and increase the number of workers. Again, on the new, shifted production curve, the number of workers would have us move alone the curve to the right, causing an increase in RGDP. This increase will again shift the aggregate supply curve to the right. Thusly, it can be said that, under Classical economic theory, the increase in the productivity of workers will increase economic growth twice.