Federal Reserve Chairman Ben Bernanke said that productivity is “perhaps the single most important determinant of average living standards.”  Manufacturing productivity (excluding computers) consistently outpaces such growth in other sectors; between 1998 and 2011, it grew at an average annual rate of 3.3 percent.  In contrast, service sector productivity grew by 1.5 percent.  Higher productivity means that we can produce more with our stock of resources (labor and capital) and it is thus the basis for higher wages and living standards.  Rising productivity is one reason prices of manufactured goods have risen at a slower rate than the overall price level.

Sustainable long-term economic growth is the result of increases in the size and quality of the labor force, investment in capital equipment, and technological improvements.  The trend in the size of the labor force is largely determined by demographic factors and immigration.  Investments in capital equipment, technology, and education, however, are sensitive to policy decisions.  The manufacturing sector is the most intensive user of capital equipment and technology, which explains why it is the nation's productivity powerhouse.  Continued growth in productivity requires an increasingly skilled labor force, something that can be addressed by policies directing more investment in education to provide students with the technical skills required in today's factories.

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