One-Third Rule

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Interpersonal Skills

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

    A management model that aims to improve performance of an organization ...
  3. Nominal GDP

    A gross domestic product (GDP) figure that has not been adjusted ...
  4. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
  5. Gross Domestic Product - GDP

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

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  6. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.
  7. Economics

    What is a Promissory Note?

    A written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.
  8. Savings

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. Microeconomic principles can describe many everyday experiences. We use renting a New York ...
  9. Personal Finance

    Why Are Tesla Cars So Expensive?

    What makes Tesla cars so expensive? Short supply and pricey parts is a good place to start.
  10. Economics

    What is M1?

    M1 is a measurement of money supply that includes all hard currency, plus demand deposits such as checking accounts.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center