Chapter 10.
Productivity Measures: Business Sector and Major
Subsectors
Uses
and Limitations
Measures of output per hour (labor productivity), output
per unit of capital (capital productivity), and output
per combined unit of multifactor input (multifactor
productivity) and related measures of costs are designed
for use in economic analysis and public and private
policy planning. The data are used in forecasting and
analysis of prices, wages, and technological change.
The labor productivity, multifactor productivity, and
related cost measures are useful in investigating the
relationships between productivity, wages, prices,
profits, and costs of production. As noted above, gross
domestic product represents the sum of all production
costs: labor compensation, profits, depreciation,
interest, rent, indirect business taxes, and other minor
items. Unit labor costs, or compensation per unit of
output, represent a major portion of total unit costs and
reflect the combined effect of changes in output per hour
and compensation per hour; thus, an increase in
compensation per hour tends to increase unit labor costs
while an increase in output per hour tends to reduce
them, other things being equal. Therefore, through its
impact on unit labor costs, output per hour is an
important element in the wage-price relationship because
it is an indicator of the extent to which compensation
gains can occur without putting pressure on prices or
reducing payments to other input factors.
Certain characteristics of the productivity and
related cost data should be recognized in order to apply
them appropriately to specific situations. First, the
data for aggregate sectors reflect changes within various
constituent industries as well as shifts in the relative
importance of these industries: a portion of labor
productivity growth from 1947 to the mid-1960s is
attributable to the shift of workers from farm to nonfarm
occupations. Second, the relationships among variables
are often difficult to identify over short time periods.
Third, data and other resources available for their
preparation somewhat limit the productivity, output,
compensation, and employment measures which can be
constructed. In several sectors where output is difficult
to define in a satisfactory way, productivity measures
are correspondingly weak. Examples are the construction
industry and the financial services sector, where output
is an imputed value of labor and other inputs. The
productivity and costs measures for these sectors should
be interpreted with caution.
Next: Technical
References
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