Growth that cannot be explained by increases in the quantity of inputs can be explained only by an increase in the productivity of those inputs---each unit of input must be producing more output. The productivity of an input can be affected by factors including technological change, other advances in knowledge, and economies of scale.
Technological Change The Industrial Revolution was in part sparked by new technological developments. New techniques of spinning and weaving---the invention of the "mule" and the "spinning jenny," for example were critical. The high-tech boom that swept the United States in the early 1980s was driven by the rapid development and dissemination of semiconductor technology.
Technological change affects productivity in two stages. First, there is an advance in knowledge, or an invention. However, knowledge by itself does nothing unless it is used. When new knowledge is used to produce a new product or to produce an existing product more efficiently, there is innovation.
Technological change cannot be measured directly. Some studies have presented data on "indicators" of the rate of technical change---the number of new patents, for example---but none are satisfactory. Still, we know technological changes that have improved productivity are all around us. Computer technology has revolutionized the office, hybrid seeds have increased the productivity of land, and more efficient and powerful aircraft have made air travel routine and inexpensive.
 Other Advances in Knowledge Over and above invention and innovation, advances in other kinds of knowledge can also improve productivity. One is what we might call "managerial knowledge." For example, because of the very high cost of capital during the early 1980s, firms learned to manage their inventories much better. Many people were able to keep production lines and distribution lines flowing with a much lower stock of inventories. Inventories are part of a firm's capital stock, and trimming them reduces costs and raises productivity. This is an example of a capital-saving innovation; many of the advances that we are used to thinking about, such as the introduction of robotics, are labor-saving.
In addition to managerial knowledge, improved personnel management techniques, accounting procedures, data management, and the like can also make production more efficient, reduce costs, and increase measured productivity.
Economies of Scale External economies of scale are cost savings that result from increases in the size of industries. The economies that accompany growth in size may arise from a variety of causes. For example, as firms in a growing industry build plants at new locations, they may lower transport costs. There may also be some economies of scale associated with research and development (R&D) spending and job training programs.
Other Influences on Productivity In addition to technological change, other advances in knowledge, and economies of scale, other forces may affect productivity. During the 1970s and 1980s, the U.S. government required many firms to reduce the air and water pollution they were producing. These requirements diverted capital and labor from the production of measured output, therefore reducing measured productivity. Similarly, requirements imposed by the Occupational Safety and Health Act (OSHA) have required firms to protect workers better from accidental injuries and potential health problems. These laws also divert resources from measured output.
 Negative effects such as these are more a problem of measurement than of truly declining productivity. The Environmental Protection Agency (EPA) regulates air and water quality because clean air and water presumably have a value to society. The resources diverted to produce that value are not wasted. A perfect measure of output produced that is of value to society would include environmental quality and good health.
The list of factors that can affect productivity is large. Weather can have a big impact on agricultural productivity.
*CASE & FAIR, 2004, PRINCIPLES OF ECONOMICS, 7TH ED., PP. 636-637* | 
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