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Alternative output measurement for the U.S. retail trade sector
Marcel P. Timmer, Robert Inklaar, and Bart van Ark
One of the main features of the resurgence in U.S. labor productivity growth after 1995 is the strong contribution by both wholesale and retail trade. In fact, the productivity performance of these sectors is the foremost reason why the American economy grew so much faster than the European economy over the past decade.1 Naturally, this has attracted attention to the way in which output and productivity in the trade sector is measured in the United States and Europe.2
There is no consensus on how to measure output in retail trade for the purpose of productivity measurement. Many productivity studies, including BLS studies in the Review, use real sales per hour worked as an indicator of labor productivity growth.3 Using sales volume as an indicator for real trade output assumes that there is a one-to-one relationship between the number of products sold and the trade services delivered. For example, if an automobile dealership sells twice as many cars, it is assumed to deliver twice as many trade services. This assumption may of course be criticized from a statistical viewpoint. For example, with the more intensive use of quality-adjusted price indexes for the deflation of sales values, the resulting sales volume is not such a correct proxy for trade services anymore. Nowadays, this problem is most visible when one measures computer sales. For example, nominal sales of the electronic and appliance stores (NAICS 4431) grew on average at 5 percent per year during 1995–2002. The prices of these products, about half of which are computers, declined on average at an annual rate of 12 percent due to dramatic technical improvements. As a result, sales volume grew by a phenomenal 17 percent annually. But, as pointed out by Jack E. Triplett and Barry P. Bosworth: "Electronic stores are in the business of selling boxes that they obtain from the manufacturer…An index that combines the improvements within the box with changes in the number of boxes bears little relationship to the actual activities of the retail store."4 In the remainder of this article, we call this the "inside-the-box" effect.
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Footnotes
1
See, for example, Bart van Ark, Robert Inklaar, and R. H.
McGuckin, "ICT and productivity in Europe and the United States, Where do
the differences come from?" CESifo Economic Studies, vol. 49, March
2003, pp. 295–318.
2 See, for example, The EU Economy 2004 Review, European Economy no. 6 (Luxembourg, European Commission, Office for Official Publications, 2004).
3 See Christopher Kask, David Kiernan, and Brian Friedman, "Labor productivity growth in wholesale trade, 1990–2000," Monthly Labor Review, December 2002, pp. 3–14 and Mark Sieling, Brian Friedman, and Mark Dumas, "Labor productivity in the retail trade industry, 1987–99," Monthly Labor Review, December 2001, pp. 3–14.
4 See Jack E. Triplett and Barry P. Bosworth, Productivity in the U.S. Services Sector. New Sources of Economic Growth, ch. 8 (Washington, DC, The Brookings Institution, 2004), p. 240.
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1994.
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1989.
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