Multifactor productivity in U.S. manufacturing, 1949-83, (EXCERPT), Monthly Labor Review Online, October 1987

Multifactor productivity in
U.S. manufacturing, 1949-83

William Gullickson and Michael J. Harper

The strong labor productivity advance exhibited by the U.S. economy over the 25 years following World War II gave way to sluggish growth beginning in the early 1970s. The manufacturing sector, which accounts for about 20 percent of gross national product, has experienced a similar pattern. Prior to about 1973, the rapid productivity growth in manufacturing contributed to swift increases in the U.S. standard of living, and also to a favorable international balance of payments. After 1973, and particularly during the late 1970s, manufacturing productivity growth fell short of its earlier performance.

In this article, the Bureau of Labor Statistics introduces a new set of multifactor productivity measures designed to strengthen the statistical basis with which labor productivity, and production technology in general, can be analyzed. These new measures of multifactor productivity, available for 20 manufacturing industries, are defined as output per unit of combined capital, labor, energy, materials, and business service inputs (collectively identified by the acronym KLEMS). They expand the BLS manufacturing multifactor productivity measurement program in two important ways: First, they enhance the level of industry detail so that growth can be localized, rather than seen in the aggregate; and second, they consider intermediates—raw materials and business service inputs—explicitly, so that economics in those inputs can be assessed along with those in labor and capital.

Changes over time in these new multifactor measures reflect many influences, including variations in output (especially in the short term, during which most inputs are partially fixed), the utilization of capacity, changes in the characteristics and efforts of the work force, changes in managerial skill, and technological developments. Measures of multifactor productivity have a specific relationship to measures of labor productivity: Labor productivity growth can be seen as deriving from (1) growth in multifactor productivity and (2) changes in the ratios of labor to other inputs, or labor intensity ratios. These input ratios can change for several reasons, most notably in response to relative price change, even in the absence of multifactor productivity growth. Because changes in multifactor productivity and in the intensity of use of the various factors have occurred at different rates throughout the postwar period, the impact of these forces on labor productivity growth has varied also.

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