What is Verdoorn's law in simple terms?

It is the empirical rule that the faster factories increase their output, the faster output per worker rises.

Because output growth and productivity growth reinforce each other, it helps explain why growth gaps between countries and regions can widen cumulatively.

Verdoorn's Law

📈 Economics By CampusDown Wiki Editorial Team Last updated October 26, 2026

Verdoorn's law is the empirical relationship whereby faster growth of manufacturing output is associated with faster growth of labor productivity. The Dutch economist Petrus Johannes Verdoorn reported it in 1949, typically finding that a 1 percent faster rise in output goes with about a 0.5 percent faster rise in productivity. Nicholas Kaldor made it central to his theory of growth.

Contents

1. Origins and concept
2. Kaldor's growth laws and cumulative causation
3. Empirical debate and modern significance
4. FAQ
5. References

Origins and concept

Adam Smith (1776) held that the division of labor deepens and productivity rises as markets widen, and Allyn Young (1928) extended this into increasing returns for the economy as a whole. Verdoorn (1949) found in data for several countries a stable positive relationship between the growth of manufacturing output and the growth of labor productivity. The relationship is interpreted as reflecting dynamic economies of scale, in which specialization, learning and the adoption of technology proceed together as output expands. Arrow's (1962) learning by doing formalized a similar mechanism.

Kaldor's growth laws and cumulative causation

Analyzing Britain's slow growth, Kaldor (1966) set out three laws: manufacturing growth drives overall growth; growth of manufacturing output raises manufacturing productivity (Verdoorn's law); and expansion of manufacturing raises productivity in other sectors. Dixon and Thirlwall (1975) combined this with export demand to build a model of cumulative causation, in which regions that start ahead raise competitiveness through productivity gains and attract still more demand. The idea connects to Thirlwall's law and path dependence.

Empirical debate and modern significance

Rowthorn (1975) criticized Kaldor's estimates as relying heavily on outliers such as Japan, while Kaldor (1975) replied that treating output as the independent variable was correct because employment growth is determined by demand. McCombie (1982) identified the static–dynamic Verdoorn law paradox, in which estimates using levels of time-series data show constant returns while estimates using growth rates show increasing returns. Fingleton and McCombie (1998) and Angeriz, McCombie and Roberts (2008) found substantial increasing returns and spatial spillovers in European regional data. Romer's (1986) model of increasing returns expressed similar ideas within the framework of endogenous growth theory.

FAQ

What is Verdoorn's law in simple terms?: It is the empirical rule that the faster factories increase their output, the faster output per worker rises.
Why does it matter?: Because output growth and productivity growth reinforce each other, it helps explain why growth gaps between countries and regions can widen cumulatively.

Sources reviewed: 2026-10-26

References

Verdoorn, P. J. (1949). Fattori che regolano lo sviluppo della produttività del lavoro. L'Industria, 1, 3–10.
Kaldor, N. (1966). Causes of the Slow Rate of Economic Growth of the United Kingdom. Cambridge: Cambridge University Press.
Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. London: W. Strahan and T. Cadell.
Young, A. A. (1928). Increasing returns and economic progress. Economic Journal, 38(152), 527–542.
Arrow, K. J. (1962). The economic implications of learning by doing. Review of Economic Studies, 29(3), 155–173.
Rowthorn, R. E. (1975). What remains of Kaldor's law? Economic Journal, 85(337), 10–19.
Kaldor, N. (1975). Economic growth and the Verdoorn law: A comment on Mr Rowthorn's article. Economic Journal, 85(340), 891–896.
Dixon, R., & Thirlwall, A. P. (1975). A model of regional growth-rate differences on Kaldorian lines. Oxford Economic Papers, 27(2), 201–214.
McCombie, J. S. L. (1982). Economic growth, Kaldor's laws and the static-dynamic Verdoorn law paradox. Applied Economics, 14(3), 279–294.
Fingleton, B., & McCombie, J. S. L. (1998). Increasing returns and economic growth: Some evidence for manufacturing from the European Union regions. Oxford Economic Papers, 50(1), 89–105.
McCombie, J. S. L., Pugno, M., & Soro, B. (Eds.). (2002). Productivity Growth and Economic Performance: Essays on Verdoorn's Law. Basingstoke: Palgrave Macmillan.
Angeriz, A., McCombie, J. S. L., & Roberts, M. (2008). New estimates of returns to scale and spatial spillovers for EU regional manufacturing, 1986–2002. International Regional Science Review, 31(1), 62–87.
Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002–1037.

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Thirlwall's LawWhat Thirlwall's law is: the proposition that long-run growth is constrained by export growth divided by the income elasticity of imports, its roots in Harrod's trade multiplier and Kaldor, extensions with capital flows, evidence and Krugman's critique.📈 Economics Endogenous Growth TheoryWhat endogenous growth theory is: Romer's knowledge spillovers and nonrival ideas, Lucas's human capital, the AK model, the Aghion–Howitt model, Jones's scale-effect critique, and evidence that ideas are getting harder to find.📈 Economics Path DependenceWhat path dependence is, David's QWERTY case and Arthur's model of increasing returns and lock-in, North's institutional economics, critical junctures in political science and historical sociology, the Liebowitz–Margolis critique and organizational path dependence.📈 Economics Solow Growth ModelWhat the Solow growth model is: the Solow–Swan production function, diminishing returns to capital, the steady state, the golden rule, technical progress and the Solow residual, conditional convergence, the MRW extension, and the East Asian growth debate.📈 Economics Lewis Dual-Sector ModelWhat the Lewis dual-sector model is: development as surplus labour moving from a traditional sector to a capitalist sector, the Lewis turning point, extensions by Ranis–Fei and Harris–Todaro, East Asian evidence and assessments.📈 Economics

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This article was last updated on October 26, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.