Measurement and Interpretation of Productivity (1979) / Chapter Skim
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2 Uses, Misuses, and Limitations of Productivity Statistics
2 Uses, Misuses, and Limitations of Productivity Statistics
Pages 19-34
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From page 19... ...
Broadly defined, productivity measures include all measures that relate one or more measured inputs to a measure of output usually in the form of a ratio. Thus, we can measure the yield of a cornfield in bushels per acre, the fuel economy of a car in miles per gallon, or the average labor productivity of a shoe factory in pairs of shoes per employee-hour, and all of these are productivity measures.
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From page 20... ...
For example, an Associated Press story of April 25, 1978, reporting a decline in output per hour of all persons in the private business sector in the first quarter of 1978 began: "American workers' productivity fell 3.6 percent at an annual rate in the first four months of 1978." Quite apart from the error of giving the length of a calendar quarter as 4 months instead of 3, the language seems to attribute the decline in measured productivity to workers. Readers might well infer incorrectly that workers were less energetic or diligent in the first quarter of 1978 than previously.
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From page 21... ...
They are common in all measures of economic activity. It should also be noted that production processes often have undesired effects in addition to the desired one of producing economic output.
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From page 22... ...
The use of productivity measures as measures of performance designed to highlight possible problems and to stimulate action if needed is most direct when data are gathered at the establishment or divisional level within a firm. A firm having several different establishments producing the same product could compare productivity data across establishments in an effort to extend the best practice of production to all of its establishments and thus to raise the average productivity of the firm.
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From page 23... ...
Table 2-1, condensed from a recent BES publication, shows estimates of changes in productivity and unit labor costs in the iron and steel industry for five countries from 1964 to 1974. The estimates indicate that over this period, productivity in the steel industry rose less rapidly in the United States than in any of the other countries except the United Kingdom.
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From page 24... ...
PRODUCTIVITY MEASURES, LIVING STANDARDS, AND INCOME DISTRIBUTION Interest in measures of productivity changes for the economy or its major sectors arises in large part from the relation between changes in productivity and changes in the standard of living. Productivity growth is one of the most important sources of a rise in aggregate output and income, and it is by far the most important source of the rise in output and income per person employed.
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From page 25... ...
It implies a slower improvement in our ability to raise levels of consumption, to reduce poverty, and to enhance the quality of life. Increases in real income arising from productivity growth are generally distributed as increases in real compensation to suppliers of the factors of production, whose real compensation otherwise can change only through income redistribution.
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From page 26... ...
Thus we see that an increase in the compensation of labor proportional to the trend of increases in the average productivity of labor has two interesting properties. First, because on average the increase in compensation does not raise unit labor cost, increases in the price level are not needed to pay for it; in this sense it can be called noninflationary.5 Second, the increase in compensation does not necessarily alter the distribution of output between labor and non-labor inputs.
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From page 27... ...
(By 1967, when the wage guideposts were dropped from the Economic Report, the consumer price index had been rising faster than the trend of productivity, and the problem of price changes could no longer be ignored.) The 1962 Economic Report also pointed out circumstances in which one would want to make exceptions to a policy of tying particular wage changes to national productivity trends.
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From page 28... ...
It is true by definition that if compensation in an industry rises at the same rate as output per employeehour in that industry, unit labor costs will be constant. However, if this identity were used as a rule to govern changes in compensation in each industry separately, given the great dispersion of productivity trends among industries, the result would soon be very different pay in different industries for work of comparable difficulty requiring comparable skill.
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From page 29... ...
and labor requirements. Potential GNP iS defined as the output that could be produced at a high employment level.8 A recent example of the use of productivity data to measure potential GNP may be found on pages 52-57 of the Economic Report of the President, 1977 (U.S.
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From page 30... ...
Forecasts of potential GNP are made by extrapolating trends such as those shown in Figure 2-1. At a more detailed industry level, labor requirements measured in employee-hours could be forecast by forecasting demand and hence output, then dividing that forecast by the projected trend in output per employee-hour.
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From page 31... ...
The use of productivity measures in forecasting is closely related to their use in business-cycle analysis and hence in forming monetary and fiscal policy. It is well established that measured output per employee-hour tends to fall, or to increase at a slower rate, when economic activity is contracting, especially in the early stages of the contraction.
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From page 32... ...
Changes in productivity include all of the sources of growth except increases in the quantity of inputs. This means, in particular, that accounting for productivity change involves measuring or finding indicators of changes in the quality of inputs, the state of technology, and economies of scale, but such a listing does not do justice to a difficult and important subject.
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From page 33... ...
Goals may be further distorted in situations in which performers or evaluators emphasize maximizing evaluation scores rather than performance quality. For example, pressures on schools to adopt competence-based evaluation systems can lead to the development of teachers who teach and students who learn "to the tests." Many organizations lacking empirically demonstrable techniques use instead what may be termed socially validated processes.
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From page 34... ...
rather than the average product of labor. Changes in marginal product will be equal to changes in average product only under special assumptions about the nature of the production process, and it has not been demonstrated that these assumptions hold true.
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