Economists and laypersons alike understand “economic growth” to mean growth in output per capita, in other words, the happy situation in which a society's total production grows faster than its population, so that more goods and services become available per person. Only when a nation's economy consistently produces such growth can its citizens enjoy a steadily rising standard of living. But what can bring this about? The answer is a rise in productivity. Assuming for simplicity that the length of the work week and the proportion of the population that is working remain constant as the economy grows, a given rise in productivity, which is the name economists give to output per work-hour, will bring about an equivalent increase in output per capita and therefore in living standards.

During most of the twentieth century, productivity in the U.S. economy has increased by 2 to 3 percent per year. However, the pattern has not been uniform across industries. In particular, output per worker has risen much faster in manufacturing than in certain kinds of service industries such as education, nursing home care, barbershops, automotive repair, gourmet food preparation, and – relevant for the purposes of this chapter – the live performing arts. Such industries are said to suffer from “productivity lag.” Diverse as their outputs may sound, these industries have in common a single characteristic that inhibits increases in output per work-hour: In each of them it is difficult, perhaps impossible, to substitute machinery for labor, and more machinery per worker is an important source of increased productivity.