Macro views. General discussion of productivity program What is productivity? How is it measured? Why is it important? How is it used in the growth accounting framework? Challenges. What is productivity?.
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Macro views • General discussion of productivity program • What is productivity? • How is it measured? • Why is it important? • How is it used in the growth accounting framework? • Challenges
What is productivity? • Productivity is a concept that measures the efficiency with which resources (labour, capital, other inputs) are employed to produce goods and services (or output) • The growth in productivity captures the extent to which the growth in output exceeds the growthin resources devoted to production
How to measure productivity? • Two ways to measure the efficiency of resources • The first way is to measure the productivity of one resource at a time, what is termed a partial productivity measure • For example, labour productivity, capital productivity, energy productivity • Of which, labour productivity is the most popular, measured approximately by real output growth minus growth of hours worked
Why is productivity important? “Over long periods of time, small differences in rates of productivity growth compound, like interest in a bank account, and can make an enormous difference to a society's prosperity. Nothing contributes more to reduction of poverty, to increases in leisure, and to the country's ability to finance education, public health, environment and the arts.” Alan Blinder and William Baumol. 1993. Economics: Principles and Policy. (p.778). San Diego: Harcourt Brace Jovanovich.
Why is productivity important? • GDP growth can be decomposed into that coming from the application of more resources and that coming from increases in productivity
Over the last 25 years, for every percent of Canada's economic growth, labour productivity has contributed for nearly half of it... 4.0 Labour productivity Hours worked 3.5 3.0 2.5 1.8 1.4 1.5 2.0 1.4 1.5 1.0 1.5 1.5 1.4 0.5 0.9 0.0 1981 to 2004 1981to1988 1988to2000 2000to2004
Partial productivity measures • Advantage: Easy to understand. • Disadvantage: Increases in productivity may be interpreted to be coming from increases in efficiency in the use of the resource but may simply be arising from a substitution between different resources (the use of more capital). And that substitution may not have resulted in an overall saving of resource inputs.
More comprehensive measures • Second method to measure the efficiency of resources considers all resources together—multifactor productivity (MFP) • Real output growth minus a weighted average of the growth of combined inputs (labour and capital)
What is MFP? • Multifactor productivity is the difference between the actual increase in output and the increase in output that would have been expected on the basis of existing technology from increases in multiple factors (both labour and capital—and perhaps other factor inputs).
Measurement ofMultifactor Productivity • Imposition of structure (production framework) • Use of analytical technique or specific assumptions about the economy to measure parameters associated with the structure
More comprehensive measures • Advantage: A broader and more comprehensive measure of productivity-referred to by The Economist as a “better’ measure • Disadvantage: more complex to understand, more complex to estimate—requires certain assumptions or more complex statistical estimation procedures to obtain the weights used to aggregate the various inputs • Analysis used to examine the sensitivity of MFP estimates to alternate approaches
Questions posed in the growth accounting framework • What has been the history of productivity growth over the period? • What types of capital are used in the growth process? • What types of labour are used in the growth process? • What was the relative contribution of capital, labour and productivity growth to economic growth? • How important are the various factors that determine the growth in labour productivity? Is capital deepening the prime contributor to labour productivity growth?
The growth accounting framework • Labour productivity growth is decomposed into MFP growth, changes in capital deepening, changes due to upgrading of labour skills (referred to as labour composition)
Challenges Quality (Criteria) • Accuracy • Coherency • Relevance • Interpretability
The Productivity Program • Regular product of the National Accounts • Builds on the integrated National Accounts and then adds coherent estimates of labour and capital • Provides quality assurance through consistency checks and development of coherent data series. • Provides analytical output as quality check and to facilitate interpretability
Challenges Concept • Analytical construct • Externality or Residual • Macro level approach
Challenges Measurement Issues • Estimates of Growth in Volumes • Business as Opposed to Non-Business • Comprehensiveness of Input List (Infrastructure, Non-tangible assets) • Provision of confidence intervals to guide users on quality
Challenges Relevance Focus –primarily on domestic growth Users requesting international comparisons
U.S./ Canada Labour Productivity Growth Comparison • Trend comparisons
U.S./ Canada Labour Productivity Growth Comparison • Level Comparisons
U.S./ Canada Level Comparison • Labour productivity • Harmonization of labour measures • Multifactor Productivity • Harmonization of capital measures
Canada/US relative GDP per capita, labour productivity, and work intensity (total economy)
U.S./ Canada Labour Productivity Growth Comparison • Component Comparisons • Multifactor versus capital intensity versus skill upgrading
U.S./ Canada Labour Productivity Growth Comparison • Pre and post 2000 experience
Micro views • Firm dynamics and productivity • Heterogeneous actors (small, multinationals) • Technology use and productivity • Structural change and productivity • Firm strategies, innovation and productivity • The source of externalities—urban agglomeration