Chapter 11.
Industry Productivity Measures

Multifactor Productivity Measures

Concepts
The industry multifactor productivity indexes calculate productivity growth by measuring changes in the relationship between the quantity of an industry's output and the quantity of inputs consumed in producing that output, where measured inputs include capital and intermediate purchases (including raw materials, purchased services, and purchased energy) as well as labor input.

A Tornqvist index is used to calculate multifactor productivity:

where:

ln = the natural logarithm of the variable

A = multifactor productivity

Q = output

K = capital input

L= labor input

IP = intermediate purchases input

w_k, w_l, w_ip= cost share weights

The weights are the means of the cost shares in two adjoining time periods.

where:

= price of input x_i in period t

The Tornqvist formula yields growth rates which are differences in logarithms. The antilogs of these rates are chained to form the index.

Next: Methods and Sources