Verdoorn's law

Verdoorn's law is an empirical relationship in which faster output growth is associated with faster labor-productivity growth, often attributed to increasing returns to scale.

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Increasing returns to scale: A production property in which output rises proportionally more than inputs when all inputs increase together. The law is often explained by scale economies that let productivity rise as output expands.
Petrus Johannes Verdoorn: A Dutch economist whose 1949 study reported a relationship between output growth and labor-productivity growth. His empirical result gave the relationship its name.
Manufacturing: The production of goods through the transformation of materials, components, or substances. The relationship has been especially prominent in studies of manufacturing productivity and output.
Okun's law: An empirical relationship between changes in output and changes in unemployment. Unlike Verdoorn's law, it links output growth to labor-market slack rather than productivity growth.
Learning by doing: Productivity gains acquired through experience in producing goods or performing tasks. Expanding production can build experience that improves labor productivity.
Nicholas Kaldor: A Hungarian-British economist known for theories of economic growth and industrial development. Kaldor incorporated Verdoorn's relationship into an account of manufacturing-led growth.
Regional economics: The study of how economic activity, growth, and resources vary across geographic areas. Regional analysts use the law to assess whether local output growth generates productivity gains.
Solow residual: The portion of output growth not accounted for by measured growth in labor and capital inputs. It measures unexplained productivity growth rather than relating productivity growth to output growth.
Labor productivity: Output produced per unit of labor input, measured by workers or hours worked. This is the productivity measure whose growth Verdoorn's law relates to output growth.
Kaldor's growth laws: Three propositions linking manufacturing growth, economy-wide productivity, and the growth of output. Verdoorn's relationship underpins the second of Kaldor's growth laws.