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From the point of view of statistical offices concerned with the publication of regular productivity statistics, complex econometric approaches bear little attractiveness because: i) updating involves full re-estimation of (systems of) equations; ii) methodologies are often difficult to communicate to a broad spectrum ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Hulten (2001) points out that there is no reason why the econometric and the index number approach should be viewed as competitors; he quotes examples of synergism that proved particularly productive.
Synergies arise in particular when econometric methods are used to further explain the productivity residual, thereby ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Their potential richness and testable set-up make them a valuable complement to the non- parametric, index number methods that are the recommended tool for periodic productivity statistics.
14. simplifying assumptions.
These include in particular: However, in its simpler form, the growth accounting framework has to r... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Production functions relate maximum producible output to sets of available inputs.
Producers behave efficiently, i.e.
they minimise costs and/or maximise revenues.
• Markets are competitive, and market participants are price-takers who can only adjust quantities but not individually act on market prices.
These cond... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Also, in many cases, productivity analysis has developed methods to deal with situations where one or several of these conditions do not prevail.
Usually, however, this requires more complex methodology or enhanced data requirements.
A case in point is the measurement of output and productivity in non-market activiti... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
(Chapter 7 sketches some methodologies for productivity measurement that might apply in such instances.)
19 16.
However, if the above conditions hold approximately, they permit construction of productivity measures on the basis of price and quantity observations only which are frequently available in OECD countries.
... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
2.5.
Some conclusions 2.5.1.
Use and interpretation of productivity measures8 • Labour productivity is a useful measure: it relates to the single most important factor of production, is intuitively appealing and relatively easy to measure.
Also, labour productivity is a key determinant of living standards, measured ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
However, it only partially reflects the productivity of labour in terms of the personal capacities of workers or the intensity of their efforts.
Labour productivity reflects how efficiently labour is combined with other factors of production, how many of these other inputs are available per worker and how rapidly embo... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
One way of carrying out further analysis is to turn to multifactor productivity (MFP) measures.
• Multifactor productivity measurement helps disentangle the direct growth contributions of labour, capital, intermediate inputs and technology.
This is an important tool for reviewing past growth patterns and for assessin... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
An important distinction concerns the difference between embodied and disembodied technological change.
The former represents advances in the design and quality of new vintages of capital and intermediate inputs and its effects are attributed to the respective factor as long as the factor is remunerated accordingly. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Disembodied technical change comes “costless”, for example in the form of general knowledge, blueprints, network effects or spillovers from other factors of production including better management and organisational change.
The distinction is important from a viewpoint of analysis and policy relevance.
• Further, in e... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Such factors include adjustment costs, scale and cyclical effects, pure changes in efficiency and measurement errors.
• MFP measures tend to understate the eventual importance of productivity change in stimulating the growth of output.
In static models of production such as the one used in this manual, capital is an ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
In a dynamic context, this is not the case and feedback effects exist between productivity change and capital: suppose that technical change allows more output to be produced per person.
The static MFP residual measures just this effect of technical change.
However, additional output per person may lead to additional... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Then, a traditional growth accounting measure would identify this induced effect as a growth contribution of capital, although it can be traced back to an initial shift in technology.
Thus, the MFP residual correctly measures the shift in production possibilities but does not capture the induced effects of technology ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Growth accounting and productivity measurement identifies the relative importance of different proximate sources of growth.
At the same time, it has to be complemented by institutional, historical and case studies if one wants to explore the underlying causes of growth, innovation and productivity change.
2.5.2. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
2.5.2.
Challenges for statisticians 17. specific need for further research and development of data and statistics: From the perspective of productivity measurement, there are at least four areas with a • Price indices for output measures by industry, in particular for high-technology industries and difficult-to-measur... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
• Measurement of hours worked by industry, as labour is the single most important factor of production.
Currently, there are many problems associated with the accurate measurement of hours worked, in particular when disaggregated by industry.
Specific challenges in this context include successfully combining informat... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
A cross-classification of hours worked by productivity-relevant characteristics of the workforce (education, experience, skills, etc.)
would also be highly desirable.
• The quality of existing measures of capital input typically suffers from an insufficient empirical basis.
For example, there are too few and often o... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
More generally, capital measures for productivity analysis (capital services) should be set up consistently with capital measures for asset balance sheets (wealth stocks), and consumption of fixed capital in the national accounts.
• Input-output tables are sometimes missing or dated, and not always integrated with nat... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
The development of a consistent set of supply, use and industry-by-industry tables and their full integration with national accounts at current and constant prices is an important element in deriving reliable productivity measures.
21 3.
OUTPUT Overview: measures of output Gross-output based productivity measures cap... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
For an individual firm or industry, measures of gross output, combined with labour, capital and intermediate inputs, correspond directly to a specific model of a production function with “neutral” or “output-augmenting” technical change.
When multifactor productivity measures are based on such a gross-output concept, ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Alternatively, MFP measures could be based on a value-added concept where value added is considered a firm’s output and only primary inputs are taken as a firm’s input.
Value- added based productivity measures reflect an industry’s capacity to contribute to economy- wide income and final demand.
In this sense, they a... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
At the aggregate level of the economy, gross-output and value-added based measures converge when gross-output measures are defined as sectoral output.
Sectoral output is a measure of production corrected for deliveries within a given sector.
From this perspective also, gross-output and value-added based measures are ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
A useful strategy in the development of productivity measures is to start with aggregate value-added based productivity measures: the necessary data tends to be relatively easily available and the choice between gross output and value added makes less difference than at the detailed industry level.
More on the choice ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Sectoral output is defined in Section 3.1.3.
The preferred source: national accounts.
National accounts constitute the preferred statistical source for productivity measurement.
The utility of national accounts for productivity analysis can be greatly enhanced when they are set up jointly and consistently with an in... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
More on input-output tables in Chapter 6.
23 ☛ ☛ ☛ ☛ ☛ The quality of price indices is vital for productivity measurement… …but often difficult to achieve.
Price indices to deflate current-price series of inputs and outputs play a major role in productivity measurement.
It is, for example, important that price stati... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Input-based indicators that are used to deflate output series generate an obvious bias in productivity measures: (labour) productivity growth will either be zero by construction or will reflect any assumptions about productivity growth made by statisticians.
Occurrences of input-based extrapolation are concentrated in... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
independence of While their correspondence – preferably, they should be based on the same statistical sources.
In practice, this is not always the case, and there is a risk of using unmatched input and output data for productivity measurement.
input and output measures important, so is is More on extrapolation in Sec... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
The rapid development of information and communication technology products has brought to centre-stage two long-standing questions of price measurement: how to deal with quality changes of existing goods and how to account for new products in price indices.
There is no easy solution to these questions, although some c... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Different methodologies can yield quite different profiles of price and quantity indices, and so reduce international comparability of measures of output and productivity.
More on quality change in Section 3.3.3.
3.1.
Gross-output and value-added based productivity 3.1.1.
Definitions Multifactor productivity measur... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Another representation relates value added to primary inputs.
Whether one of these measures should be preferred over the other has been an issue of considerable debate.
Before shedding further light on this topic, it is useful to clarify terms and to show the links to the system of national accounts.
19.
Consider T... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
We call gross output the goods or services that are produced within a producer unit and that become available for use outside the unit.
This is a gross measure in the sense that it represents the value of sales and net additions to inventories without, however, allowing for purchases of intermediate inputs.
When purc... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
In this sense, value added is a net measure.
It may not be considered a net measure in the sense that it includes the value of depreciation or consumption of fixed capital.
However, throughout this manual, value added and gross output are understood to include the value of consumption of fixed capital.
20.
On the i... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Primary inputs are those factors of production that are treated as exogenous in the framework of production analysis.
In a static framework such as the one underlying this manual, primary inputs comprise capital and labour.
In a 24 ☛ ☛ dynamic framework, capital becomes an endogenous factor of production, but the tre... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
those goods and services that are produced and transformed or used up by the production process within an accounting period.
Table 2.
Combined production and generation of income account1 Uses Resources Intermediate consumption (purchases of intermediate inputs) Output Market output Gross value added Consumption of f... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Details on the income components of gross value added are found in the generation of income account; the other elements in the table are found in the production account of corporations (SNA 93).
3.1.2.
Production functions, gross output and value added 21.
To discuss the different approaches towards productivity mea... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
labour and capital, and intermediate ones (M).
The function also contains a parameter A(t) that captures disembodied technological shifts.
Disembodied technical change can be the result of research and development that leads to improved production processes, or technical change can be the consequence of learning-by-d... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Rather, it affects inputs proportionally.
This form of technical change is also called “Hicks-neutral” and is “output augmenting” when it raises the maximum output that can be produced with a given level of primary and intermediate inputs, and without changing the relationship between different inputs.
Under this ass... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
It is easy to see that the level of technology in (1) can be presented as the ratio of output over combined primary and intermediate inputs: tA = )( Q , MXF ( ) .
In terms of rates of change, MFP growth is positive when the rate of change in gross output exceeds the rate of change in all combined measured inputs.
Put... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
When technology is Hicks-neutral, this shift just equals the rate of change shifts over time, or H ∂ ln ∂ t of the technology parameter: ∂ H ln ∂ t ∂ = A .
ln ∂ t 25 23.
Because the technology parameter cannot be observed directly, MFP growth is derived as the difference between the rate of growth of a Divisia index ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
The Divisia index of inputs is made up of the logarithmic rates of change of primary and intermediate inputs, weighted with their respective share ( ) in overall outlays for inputs: s , X s M % change of gross-output based MFP = ∂ H ln ∂ t ∂ = ln ∂ t A = ln Qd dt − s X ln Xd dt − s M ln Md dt (2) ( ( = PPXtAGG ), Alter... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
A value-added function presents the 24. maximum amount of current-price value added that can be produced, given a set of primary inputs and given prices of intermediate inputs and output.
Such a value-added function is an equivalent (“dual”) representation of the technology described by a production function.
For the... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
For the present purpose, call the .
Dependence of the value-added function on intermediate value-added function input prices MP and on gross-output prices P signals that producers adjust the level of intermediate inputs when relative prices change.
Just as the measure of technical change for the production function w... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
as the relative increase in value added that is associated with technical change.
Parallel to the earlier statement regarding the production function, this can be formulated as ∂ ln ∂ t .
Again, this change cannot be directly observed but it can be shown that it corresponds to the G M ) , , difference between the gro... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
% change of value-added based MFP = ∂ ln ∂ t G d = VA ln dt − ln Xd dt (3) This is a common way of measuring MFP based on value added.
It turns out that there is a 25. direct relation between the gross-output and the value-added productivity measure (Bruno, 1978). | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Specifically, the rate of change of value-added based MFP equals the rate of change of gross-output based MFP, multiplied by the inverse of the nominal share of value added in gross output: G = ∂ ln ∂ t 1 s VA ∂ ⋅ A ln ∂ t with s VA = G ⋅ QP (4) 9.
There is of course no physical quantity that corresponds to value adde... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
But it is always possible to ≡ define a volume index of value added as is the share of VA ) ( − d s where VAs ln Md dt M ln dt 1 s VA ln Qd dt value added in gross output and Ms is the share of intermediate inputs in gross output.
One notes, however, that this volume index may depend on the level of primary inputs, fo... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
This could be interpreted as an undesirable property because it makes the measurement of output (volume of value added in this case) dependent on the measure of input (capital and labour in this case).
To qualify as a measure of output that is truly independent of inputs, the underlying production function has to be s... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
The required separability conditions (see Goldman and Uzawa, 1964) can be quite restrictive but the right choice of index number formulae can partly overcome this problem.
26 Table 3. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Value-added and gross-output based productivity measures: an example Machinery and equipment industry, Finland Averages of annual rates of change Gross output (deflated) Value added (deflated) Labour input (total hours) Capital input (gross capital stock) Intermediate inputs (deflated expenditure) 1990-98 10.1% 9.5% 1.... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
As such, they cannot be exactly reproduced from the averages of the input-output data also presented in this table.
Source: OECD, STAN database.
26.
Because the share of value added in gross output is smaller than or equal to unity, value- added based MFP growth for a particular industry will be systematically highe... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
The differences between value added and KLEMS MFP are quite large (corresponding to the inverted share of value added in gross output): over the 1990s, KLEMS- type MFP grew by 2.7% on average, value-added based MFP by 7.8%.
This does not constitute a bias, but calls for an interpretation that is different from the gro... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
27.
Value-added shares may not be constant.
The scaling factor 1 that links the two VAs productivity measures is not in general constant over time.
The numerator of the VAs ratio, nominal value added, depends on the level of primary inputs and relative prices, as does current-price gross output, the denominator of t... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
A constant rate of MFP growth measured on a gross-output basis could thus be perfectly consistent with an accelerating or decelerating rate of MFP growth measured on a value-added basis.
This may be important, given that productivity analysts are often interested in the acceleration or deceleration of productivity gro... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Between the first and the second half of the 1990s, the share of value added in current-price gross output dropped from 38.9% to 33.4%.
A drop in the share of 1 .
Consequently, gross-output based productivity value added implies a rise in the scaling factor VAs growth and value-added based productivity growth acceler... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
The value-added measure rises from 5.7% to 9.8% – that is, by 4.1 percentage points and significantly faster than the gross-output measure.
Different forms of technical change.
For the production technology (1) with Hicks neutrality, 28. the gross-output based productivity measure is a valid representation of disembo... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
This is not the case for the associated value-added based measure which depends also on the share of value added in gross output, and thus on the time paths of inputs, outputs, prices as well as the level of technology in the period under consideration.
Rather than technical change itself, the value-added 27 based mea... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
29.
Note, however, that this interpretation of the gross-output and value-added based productivity statistics rests entirely on the assumption that the production function (1) is a valid representation of the production processes.
Suppose that technical change does not affect all factors of production symmetrically (... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
In this case, the value-added based measure becomes the independent and valid measure of technical change and the gross-output based measure loses its significance.
Such a set-up requires that firms choose their input combinations in two stages: in a first stage, it is decided how to combine value added and intermedia... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
30.
The question arises as to which of the two formulations of technology, if any, commands sufficient empirical support.
Generally, the hypothesis whereby technology affects only primary inputs has not held up to empirical verification.
This makes it difficult to defend the value-added based productivity measure as... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
However, the output-augmenting formulation of technical change, as represented by equation (1), has also not always been supported by econometric studies.
This suggests a more complex working of technical change, with several, combined influences – one that affects all factors of production simultaneously (“output aug... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Under such a general formulation it may well be that there is no independent productivity measure at all.
Fortunately, the right choice of index number formulae can be of help here.
31.
Index numbers.
So far, the discussion has been conducted in continuous time (with Divisia indices).
In practice, observations com... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Later on in this manual (Chapter 7), it will be argued that “superlative” index numbers such as the Fisher Ideal or the Törnqvist index exhibit a number of advantageous features.
One of these features is that, under certain conditions,10 they provide a reasonable approximation to an independent measure of technical ch... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
A numerical example is useful in this context.
Consider the basic data in Table 4, which presents a simplified use table for two industries.
Data are expressed in current prices, with the exception of employment that is given in hours worked.
To keep things simple, only one primary factor, labour, is considered.
Co... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Industry 1 uses products from industry 2 as an intermediate input.
Between the two time periods, the price of product 2 declines relative to labour input, and industry 1 substitutes some of its labour input for the relatively cheaper intermediate inputs from industry 2.
The converse holds for industry 2 that uses few... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Each measure is calculated both with a Törnqvist and a Laspeyres index number formula.
Details regarding the calculation of productivity indices can be found in Chapter 9 (Implementation Guide).
10.
Diewert (1980, 1983) and Diewert and Morrison (1986) use superlative index numbers and approximate measures of technic... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
28 Table 4.
Numerical example: use tables for two industries Commodity t0 1 2 Labour income Gross output Price index of gross output Employment (hours) Commodity t1 1 2 Labour income Gross output Price index of gross output Employment (hours) Industry 1 0 6 5 11 1.00 10 2 10 0 7 17 1.00 8 Industry 1 0 7 4 11 1.01 7 2 ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
First, note that gross-output based MFP in industry 1 grows by 3.3%, whereas value-added based productivity grows by 8.0%, or more than twice as fast.
If the gross-output measure reflects technical change, the rapid rise in the value-added based measure is due to outsourcing and not to an acceleration of technical cha... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
However, the 8.0% productivity growth is an accurate reflection of that industry’s increased capacity to translate technical change into a contribution to overall income and final demand.
A different way of putting this same observation is that gross-output based productivity measures are less sensitive to the degree ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
34.
Second, just the opposite is true for labour productivity measures: on a gross-output basis, labour productivity of industry 1 increases by 34.7%, and that of industry 2 declines by 19%.
The steep productivity rise in industry 1 reflects the fact that less labour is used and more intermediate inputs, but there is... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Thus, when there is substitution between primary and intermediate inputs, this results in a change in labour productivity measured under a gross-output concept: gross output is unaffected and for each unit of labour there is now a larger amount of intermediate input.
When labour productivity measures are based on valu... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Therefore, gross-output based labour productivity measures are more sensitive to the degree of vertical integration and outsourcing than value-added based labour productivity measures.11 11.
In the present numerical example, value-added based MFP growth equals value-added based labour productivity growth as there is o... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
): various productivity measures for two industries Industry Industry Gross output Value index Price index Indirect quantity index Level of gross output at constant t 0 prices Index of gross output at constant t 0 prices 1 1.00 1.01 0.99 10.9 0.99 2 0.91 0.98 0.93 15.8 0.93 Intermediate inputs Value index Price index I... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
index: % change 0.41 0.48 0.45 0.93 0.93 1.01 0.5% 1.00 0.1% 0.83 -19.0% 0.83 -19.0% Value-added based labour productivity Tornqvist index Tornqvist index: % change Laspeyres index Laspeyres index: %change 1 1.17 0.98 1.19 7.14 1.19 0.80 1.05 0.76 0.96 0.97 1.08 8.0% 1.07 6.9% 1.08 8.0% 1.07 6.9% 2 0.80 1.01 0.79 7.92 ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Third, the present example shows the sizeable differences between index numbers.
Gross- output based MFP in industry 1, calculated with a Törnqvist index, rises by 3.3%, whereas the Laspeyres-type calculation produces a mere 2.3% change.
For industry 2, the Törnqvist case of 0.5% compares with a Laspeyres-type measur... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
There are no differences for gross-output based labour productivity measures because a single, homogenous output and a single type of labour input appear in the numerical example.
Otherwise, the measures would not coincide.
30 36.
In conclusion, it would appear that gross-output and value-added based MFP measures ar... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Empirically, it is important to base productivity calculations on superlative index number formulae because they provide approximations to independent measures of outputs, inputs and technical change.
Generally, gross-output based MFP measures are less sensitive to situations of outsourcing, i.e.
to changes in the de... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Value-added based MFP measures vary with the degree of outsourcing and provide an indication of the importance of the productivity improvement for the economy as a whole.
They indicate how much extra delivery to final demand per unit of primary inputs an industry generates.
When it comes to labour productivity, value... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Practical aspects also come into play.
Measures of value added are often more easily available than measures of gross output although in principle, gross-output measures are necessary to derive value-added data in the first place.
Consistent sets of gross-output measures require dealing with intra-industry flows of i... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
3.1.3.
Intra-industry flows of products 37.
When a gross-output concept is adopted for productivity measurement at the industry level, the question arises how to treat those transactions that occur within industries, i.e.
intra-industry deliveries of intermediate inputs. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
intra-industry deliveries of intermediate inputs.
It is not difficult to see that the inclusion of intra-industry flows of intermediate products adds identically to both the input and output side of an industry production function [as in (1) where both Q and M change with the inclusion or exclusion of intra-industry d... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
This is a form of double-counting and, in principle, output and intermediate inputs can be made larger and larger by basing industry aggregates on increasingly smaller statistical units: an industry-output measure based on establishments would be larger than one based on firms and one based on firms larger than one bas... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Industry-level output measures that exclude intra-industry deliveries have been labelled sectoral output (Gollop, 1979; Gullickson and Harper, 1999b).
38.
Conceptually, adoption of such measures of sectoral output (and the corresponding measures of sector input) amounts to a process of integration of different units ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
At every level of aggregation, only flows out of or into the sector are considered.
Sectoral output is also consistent with the notion of “output” in the SNA 93 that defines it as those goods and services that become available for use outside the establishment (industry).
At the level of the entire economy, measures ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
The sector output concept offers one possibility for consistent aggregation of gross-output based MFP growth across industries.
39.
One implication of using a concept of sectoral output is, however, that growth rates of components cannot be compared to their aggregate.
As discussed in greater detail in Chapter 8 on ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Thus, a 1% growth of MFP in all individual industries may lead to a 1.5% increase of the (integrated) total economy.
This reflects the fact that the new aggregate cumulates productivity gains from intra-industry deliveries.
Under these circumstances, it is difficult to compare 13.
Strictly speaking, this statement i... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
This is not the case in practice but the basic point of dependency on the choice of units remains.
31 productivity growth of component industries with that of the aggregate.
Value-added based productivity measurement is a way to avoid dealing with intermediate inputs in the process of aggregation.
Current-price valu... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Quantity indices of value added can be aggregated by forming weighted averages, with weights adding to unity.
Value-added based productivity measures of aggregates are also weighted averages of their components and can be compared across levels of aggregation.
3.2.
Depreciation 40.
Another point of debate in the 19... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
One notes that this gross/net distinction of output relates to depreciation and not to the treatment of intermediate inputs.
Denison (1974) advocated a concept of output net of economic depreciation on the grounds that it traces improvements in welfare more closely than output measures that are gross of depreciation. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
A group of researchers, including Dale Jorgenson and Zvi Griliches, on the other hand, argued that output must be measured gross of depreciation if it is to conform to the the logic of production Jorgenson/Griliches approach.
Today, a large majority of productivity research uses output measures gross of depreciation.1... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Quantity measures of output 41.
Different methodologies to obtain quantity series of output can significantly shape the outcome of productivity measurement.
Quantity indices of output are normally obtained by dividing a current-price series or index of output by an appropriate price index (deflation).
Only in a mino... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Measurement of volume output is therefore tantamount to constructing price indices – a task whose fuller description far exceeds the scope of the present manual.
We refer to the Eurostat Handbook on Price and Volume Measures in National Accounts (Eurostat, 2001) for a more in-depth treatment of these issues.
The foll... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Closely related to the calculation of price indices are matters of index number formulae – a topic dealt with in Chapter 7.
14.
One of the reasons for advocating an output measure gross of depreciation has been the need for a consistent treatment of capital input as a flow of capital services (see Chapter 5).
The pr... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
However, in a comment on a draft of this manual, Erwin Diewert points out that the user cost term could be split into two parts: depreciation – which could then appear as an intermediate input; and the net real return to capital (nominal interest less capital gains or losses) – which could be considered the primary inp... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
The overall quantities of capital services would remain unchanged and a measure of output net of depreciation would be compatible with a measure of capital services and user costs.
15.
For a discussion regarding the United States, see Eldridge (1999).
32 3.3.1.
Deflation of value added Deflation of gross output is ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
Deflation becomes somewhat more complicated when output measures are based on value added.
As indicated earlier in this chapter, production theory leads the way to consistently defined price and quantity indices of value added.
Specifically, the volume change in value added can be defined16 as an average of the volum... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
The volume change of intermediate inputs is weighted by the share of MPM intermediate inputs in gross output ( PQ ) and the entire expression is multiplied by the inverted share of value added in gross output ( PQ VAP VA ).
This is shown in expression17 (5).
d VA ln dt = PQ P VA VA Qd ln dt − MP M PQ Md ln dt ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
However, to turn Divisia indices into operational measures, they have to be approximated empirically.
One procedure is double- deflation in a more narrow sense, where the volume measure of value added is obtained by subtracting a constant-price value of intermediate inputs from a constant-price value of gross output.
... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
In this case, expression (5) is measured as in equation (6) where all variables are expressed in prices of a specific base year: ∆ VA t VA − 1t = Q − 1t VA − 1t ∆ Q t Q − 1t − M Q − 1t − 1t ∆ M M − 1t − 1t (6) This form of double deflation requires that constant price values of intermediate inputs can 44.... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
As mentioned earlier (Section 3.1.2), the use of fixed-weight Laspeyres quantity indices raises a number of problems, and implicitly poses restrictive assumptions on the underlying production technology.
The situation is different when the empirical approximation to the Divisia quantity index is based on superlative i... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769327474.pdf | https://unstats.un.org/unsd/nationalaccount/docs/OECD-Productivity-e.pdf |
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