Academic journal article Business Economics

National Productivity Statistics

Academic journal article Business Economics

National Productivity Statistics

Article excerpt

Many people now enjoy levels of prosperity that would have been barely imaginable a few hundred years ago. That remarkable achievement can be viewed through the lens of productivity statistics that give quantitative estimates of output per unit of input. By studying productivity, analysts can improve their understanding of the causes of national prosperity and economic growth. Since different definitions of productivity are widely used, this article first reviews the most important ones used in the United States. The article next contains a brief sketch of the historical behavior of productivity, and then warns readers about potential pitfalls in using productivity statistics.

1. WHAT EXACTLY IS PRODUCTIVITY?

Simply stated, productivity is output per unit of input. Actually calculating a number can be somewhat more complicated. Suppose that we can agree that aggregate national output is adequately modeled by using a Cobb-Douglas production function:

[Y.sub.t] = [A.sub.t][[K.sub.t].sup.[Alpha]][[L.sub.t].sup.1-[Alpha]] (1)

where Y is aggregate output, K is the capital stock, L is labor input, t is a time-period index,a is a number between zero and 1, and A will be discussed later. For national productivity statistics, an obvious starting point is to take an estimate of aggregate output such as real gross domestic product (GDP) from the national income and product accounts (NIPAs). On the input side, the first requirement is to measure labor input, such as the number of workers or the number of hours worked.

The Bureau of Labor Statistics (BLS) currently publishes three categories of productivity estimates, which in terms of equation 1 are simply of the form Y/L. The most widely cited category is published quarterly and takes an output measure from the NIPAs for a large sector of the economy. Business product is the portion of real GDP produced by the business sector, and thus excludes production from the household sector, the foreign sector, and the government sector. Nonfarm business, naturally, is business product minus farm production. Product of nonfinancial corporations further excludes production by financial firms and by proprietorships and partnerships. The BLS also publishes quarterly estimates for the manufacturing sector. In 1992, business product accounted for 76 percent of GDP, nonfarm business product was 75 percent of GDP, nonfarm nonfinancial corporate business product was 52 percent of GDP, and manufacturing product was 17 percent of GDP. Since the only input considered is hours worked, these estimates are often described as labor productivity. Most of the data on employee-hours comes from the BLS's establishment survey, although for some workers other sources are used.

The BLS publishes a second category of estimates annually, using a more comprehensive definition of inputs into the production process; the result is referred to as multifactor, or total-factor productivity, and is represented by the term A in equation 1. The statistic is estimated by dividing product of a broad sector by an input index that is a weighted average of two indexes, one of labor inputs and the other of capital inputs. The index of labor inputs can be thought of as a quality-adjusted labor index; for broad sectors it is calculated as a weighted average of employee-hours for several groups of workers. The groups are defined by sex, level of education, and amount of experience. The capital input index is a weighted average of capital services from many different categories of structures, equipment, inventories, and land.

In both the quarterly and annual estimates, productivity in the narrow manufacturing sector is calculated using input and output measures that differ from the measures used to estimate productivity in the broader sectors. Manufacturing productivity is therefore not strictly comparable to the broad-sector estimates. For multifactor productivity, manufacturing labor input does not receive the demographic adjustments that the labor input receives for broader sectors. …

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