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Chapter 11.
Industry Productivity Measures
Uses
and Limitations
Measures of output per hour are useful for analyzing
trends in labor costs, comparing productivity progress
among countries, examining the effects of technological
improvements, and analyzing related economic and
industrial activities. Such analysis usually requires
that indexes of output per hour be used in conjunction
with other data. Specifically, related data on production
and employment are useful in studying technological
effects; to study trends in labor costs, data on earnings
and other labor expenditures are necessary.
These productivity measures of output per hour are
subject to certain qualifications. First, existing
techniques may not fully take into account changes in the
quality of goods and services produced. Second, although
efforts have been made to maintain consistency of
coverage between the output and labor input estimates,
some statistical differences may remain.Third, estimates
of nonproduction worker hours are subject to a wider
margin of error than are the estimates of production
worker hours because of the technique for estimating
average employee hours of nonproduction workers. Errors
in estimating hours of nonproduction workers, however,
have a relatively insignificant effect on the estimates
of hours for all employees. Fourth, industries in which
all person hours are used as the denominator are subject
to a wider margin of error because of the limited data
available for unpaid family workers, the self-employed,
and paid managers. Finally, year-to-year changes in
output per hour are irregular, and, therefore, are not
necessarily indicative of basic changes in long-term
trends. Conversely, long-term trends are not necessarily
applicable to any one year or to any period in the
future. Because of these and other statistical
limitations, these indexes cannot be considered precise
measures; instead they should be interpreted as general
indicators of movements of output per hour.
The output per hour measures relate output to only one
input—labor time—as noted earlier. They reflect
the joint effect of a number of influences including
changes in technology, capital per worker, level of
output, utilization of capacity, intermediate inputs per
worker, layout and flow of material, skill and effort of
the workforce, managerial skill, and labor-management
relations. Indexes of multifactor productivity are
subject to many of the same limitations previously
mentioned with the exception of the effects of changes in
the ratio of other factor inputs to labor. The
construction of multifactor productivity measures permits
an analysis of the effects of the changes in capital per
hour and intermediate purchases per hour on output per
hour. Labor productivity is related to multifactor
productivity in the manner given by the following
formula:
The rate of change in labor productivity, on the left
side of the equation above, is the difference between the
rate of change in output and the rate of change in labor
input. On the right side of the equation are the rates of
change in multifactor productivity, and the rates of
change in the weighted capital-labor ratio and the
weighted intermediate-purchases-labor ratio. Thus,
changes in labor productivity can be analyzed in terms of
changes in multifactor productivity versus changes in the
inputs of capital relative to labor and intermediate
purchases relative to labor.
Next: Technical
References
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