One-Third Rule


DEFINITION of 'One-Third Rule'

A rule of thumb that estimates the change in labor productivity based on changes in capital per hour of labor. Specifically, the one-third rule states that on average an increase of 1% in capital per hour of labor will result in approximately a 0.33% increase in labor productivity. This rule assumes no changes in technology or human capital.

BREAKING DOWN 'One-Third Rule'

Increases in labor productivity represent increases in real GDP per person, and thus labor productivity can usually be used as a guide to the level of standard of living. Growing labor productivity relies on three main factors: investment and savings in physical capital, technology and human capital. The rule only looks at one factor while holding the other two factors constant. This correlation was first observed by Robert Solow while studying economic growth in the U.S.

  1. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  2. Interpersonal Skills

    The skills used by a person to properly interact with others. ...
  3. Management By Objectives - MBO

    A management model that aims to improve performance of an organization ...
  4. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
  5. Nominal GDP

    A gross domestic product (GDP) figure that has not been adjusted ...
  6. Productivity

    An economic measure of output per unit of input. Inputs include ...
Related Articles
  1. Markets

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
  2. Economics

    An Explanation Of Stagflation

    Find out how stagflation is measured, what factors contribute to it and how to protect your finances.
  3. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  4. Bonds & Fixed Income

    How To Use Gross National Product As An Indicator

    Learn what the GNP truly represents, and how its misuse can manipulate the facts.
  5. Economics

    These Will Be the World's Top Economies in 2020

    Discover the current economic forces that are anticipated to significantly shift the landscape of the world's most powerful economies over the next decade.
  6. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  7. Fundamental Analysis

    Emerging Markets: Analyzing Colombia's GDP

    With a backdrop of armed rebels and drug cartels, the journey for the Colombian economy has been anything but easy.
  8. Fundamental Analysis

    Emerging Markets: Analyzing Chile's GDP

    Chile has become one of the great economic success stories of Latin America.
  9. Economics

    Explaining Fair Market Value

    Fair market value is the price at which a buyer and seller are willing to exchange a good.
  10. Economics

    Understanding Production Efficiency

    Production efficiency is the point at which an economy cannot increase output of a good or service without lowering the production of another product.
  1. Is Colombia an emerging market economy?

    Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >>
  2. Is Mexico an emerging market economy?

    Mexico meets all the criteria of an emerging market economy. The country's gross domestic product, or GDP, per capita beats ... Read Full Answer >>
  3. Is Argentina a developed country?

    Argentina is not a developed country. It has one of the strongest economies in South America or Central America and ranks ... Read Full Answer >>
  4. Is Brazil a developed country?

    Brazil is not a developed country. Though it has the largest economy in South America or Central America, Brazil is still ... Read Full Answer >>
  5. Are Social Security payments included in the US GDP calculation?

    Social Security payments are not included in the U.S. definition of the gross domestic product (GDP). Transfer Payments For ... Read Full Answer >>
  6. When has the United States run its largest trade deficits?

    In macroeconomics, balance of trade is one of the leading economic metrics that determines the trading relationship of a ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!