Multifactor Productivity Slips in the Nonrubber Footwear Industry

By Duke, John; Usher, Lisa | Monthly Labor Review, April 1989 | Go to article overview

Multifactor Productivity Slips in the Nonrubber Footwear Industry


Duke, John, Usher, Lisa, Monthly Labor Review


John Duke and Lisa Usher are economists in the Office of Productivity and Technology, Bureau of Labor Statistics.

While output per employee hour rose modestly from 1958 to 1986 multifactor productivity for this industry declined on average, more so in the period before 1973

For many years, the Bureau of Labor Statistics has published, a labor productivity measure for the footwear industry termed output per employee hour.' Many factors influence movements in labor productivity, for example, technological change, changes in the skills and efforts of the work force, economies of scale, the amount of capital input per worker, and the amount of intermediate purchases input per worker. This article presents a supplementary productivity measure for the footwear industry-multifactor productivity-in which output is related to the combined inputs of labor, capital, and intermediate purchases. This measure differs from the traditional measure in that it accounts for the last two influences in the input measure and therefore does not reflect the impact of these influences in the productivity residual.

From 1958 to 1986, output per employee hour in the footwear industry rose at an average rate of 0.6 percent per year, well below the 2.5-percent rate for manufacturing as a whole. Multifactor productivity actually declined over the period by an average 0.9 percent per year. The rise in output per employee hour reflected changes in the contribution of capital per hour, of intermediate purchases per hour, and of other sources (multifactor productivity). The development of the multifactor productivity measure indicates that the low rate of growth in output per employee hour was caused not by declining amounts of capital or intermediate purchases available to labor over the period, but rather by the influence of other factors. The influence of capital, referred to here as the capital effect, is measured as the change in the capital-labor ratio multiplied by the share of capital income in the total output. The influence of intermediate purchases, referred to here as the intermediate purchases effect, is measured as the change in the intermediate purchases-labor ratio multiplied by the share of intermediate purchases in the total output. The capital effect showed an increase of 0.6 percent per year over the period 1958-86, while the intermediate purchases effect rose 0.9 percent. The decline in multifactor productivity was more than offset by these increases in the capital effect and intermediate purchases effect. Multifactor productivity suffered at least in part ftom a slow pace of development and diffusion of new technology in the industry.

Underlying the 0.9-percent annual decrease in multifactor productivity was an output decline of 3.0 percent per year and a 2.1 -percent average annual drop in combined inputs. The decline in multifactor productivity slackened on average after 1973. (See table 1.) Although there have been year-to-year fluctuations, multifactor productivity fell at only a 0.5 -percent rate after that year, compared with the 1.2-percent average rate of decrease prior to 1973. Output per employee hour also improved in the post-1973 period relative to the earlier period, but it was well below the manufacturing average for both periods.

Trends in the individual inputs varied considerably over the 1958-86 period. (See table 2.) While labor input dropped at a rate of 3.5 percent per year, capital input rose a scant 0.1 percent per year, and intermediate purchases declined at a 1.9-percent rate. Combined inputs, the weighted aggregate of these components, declined at a 2.1 -percent rate per year. Thus, over the whole period, labor input showed the most rapid decline, followed by the lesser drop in intermediate purchases, while capital input showed a slight gain.

Although the growth in output per employee hour was well below average in the footwear industry over the period 1958-86, there was no post-1973 slowdown, as there was for manufacturing as a whole and most other industries. …

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