Measurement and Interpretation of Productivity (1979) / Chapter Skim
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Welfare Dimensions of Productivity Measurement
Welfare Dimensions of Productivity Measurement
Pages 276-308
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From page 276... ...
In addition to meeting its prime responsibility, the Panel wished to have a paper that would discuss measurement issues in the wider context of the effects of economic effort upon the workplace, the home, and in society generally. One of the main purposes of such an extended view is to put into a useful perspective the frequent criticisms of the national income accounts for sometimes showing increases in economic well-being when, it is alleged, by some reckoning welfare is not increasing or might even be declining.
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From page 277... ...
These areas are consumption, including private and collective consumption, income distribution, quality of working life, hours of work and use of time, health facilities, and the environment. A general point emphasized is that the national income accounts measure output from the point of view of a producer, not a consumer.
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From page 278... ...
Such measures referred to the physical quantity of goods and services available for consumption: the volume of food, clothing, housing, transportation services, medical services, recreational services, and SO forth, combined on the basis of the prices in some reference period and often expressed on a per-capita basis. In short, well-being meant economic well-being in the sense of the volume of material goods and services as they are presently measured in the national economic accounts of various countries.
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From page 279... ...
Welfare has been viewed not only in economic terms but in much more extended dimensions. The grounds for wanting to look well beyond the strict boundary of economic production are to be found in both positive and negative reactions to affluence.
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From page 280... ...
In comparing one person's welfare with another's, can total social welfare be enhanced by bettering the condition of some at a cost to others? This is discussed in the section on income distribution.
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From page 281... ...
in measures of achievement of different groups, particularly disadvantaged minorities, as measured by social mobility. We discuss these "outcome-type" questions in several sections of the paper but mainly in connection with quality of work, health facilities, hours of work and use of time, and in a final section on the feasibility of a system of social and economic accounts.
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From page 282... ...
, the relative market price determines the real value of output of the given product at the given time and place. In measuring the change in real output from the chosen reference period to any other period, we determine how many more or less of these loaves were produced, remembering to count each type of loaf in proportion to its relative price in the base period.
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From page 283... ...
Having briefly described the national accounting value system applied to consumption, we now discuss in more detail welfare issues and the measurement problems they pose. First, we emphasize that, apart from how well GNP-type goods actually meet the needs and wants of the population, a useful analysis of welfare issues can be undertaken within the bounds set by the economic accounts.
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From page 284... ...
Productivity advance helps consumers to make their welfare choices, and a decline in productivity hurts this process. The measurement issue comes to this: Whatever the process of consumer choice and the outcome of this choice, the input to this process of real income and of the goods and services chosen should be kept distinct and measured as best as we can within the economic production boundary.
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From page 285... ...
In any event, within this framework, income earned from production and the goods and services purchased in the market are separate elements in a welfare or utility function and are defined essentially as in the national economic accounts. QUALITY OF CONSUMER PRODUCTS Goods and services have many characteristics pertinent to well-being, but only some of them can be used to explain relative price in a market setting.
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From page 286... ...
A dramatic case in point is cited in Chapter 5 of the Panel's report of electronic calculators whose capacity and speed have increased manyfold while their relative price has declined. It is useful and important for measures of consumer well-being to reflect changes in the quality of consumption that are not reflected in relative prices.
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From page 287... ...
At this point, we mention briefly two significant types of public goods that may require measurement beyond the established production boundary: public safety and defense outlays. Public Safety The national income accounts, under general government, measure the activity of the criminal justice system by counting the compensation paid to police, judges, wardens, parole officers, etc.
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From page 288... ...
This procedure is appropriate for national accounting purposes in distinguishing between marketed output purchased by final consumers and the costs of producing such output, which include safety outlays by business. But this procedure would need modification in a wider reckoning of costs of producing public safety regardless of which sector incurred the costs.
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From page 289... ...
Whatever the degree of national security at any given time, it makes little sense for national accountants or their welfare-minded cousins simply to alter GNP in order to measure it. INCOME DISTRIBUTION Among the most important welfare outcomes of the economic system is the distribution of rewards and damages, including income from economic production, income from transfers, other benefits that are incidental or unintended, and damages not necessarily intended by economic agents.
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From page 290... ...
Cutting across all these is the matter of differences among workers in their effort per working hour. The measurement issue here involves an apparent conflict between welfare considerations and national accounting criteria.
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From page 291... ...
This is not to downgrade the importance for welfare policy of transitory conditions such as the temporary loss of a job or temporary disability, but rather to recognize that many of the concerns about relieving poverty are of a long-run nature, involving the need for a higher level and more stable growth rate of lifetime income. To what extent this growth in lifetime income requires improvement in basic skills, increases in the number of "good jobs" with promising career opportunities, or other social changes affecting the economic opportunity structure, is a question that continues to challenge social welfare policy (Moss 19784.
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From page 292... ...
We discuss each view separately to suggest the relevant welfare dimensions. PRODUCTION CRITERIA AND WORKING C ONDITION S In the production view, workers and their tasks are to be allocated so that labor costs per unit of output can be minimized and/or so that output per worker-hour can be maximized.
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From page 293... ...
Government regulation and union pressures have also played a role. Nevertheless, regardless of the complex interplay of employer and employee initiative, and pressure from unions and society, significant and enduring improvements in the quality of working life have come about and will continue to come about largely, if not solely, through continued increases in economic productivity as defined in the strict sense.
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From page 294... ...
These methods should be used more precisely in studies relating productivity to job redesign. BEYOND ECONOMIC PRODUCTION CRITERIA Strictly speaking, we cannot go beyond economic criteria because any improvements in working conditions that threaten the viability of a firm are not likely to be instituted or retained.
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From page 295... ...
But the separate study of desirable and unwanted outcomes in the workplace and of experiments in the job changes to foster desirable outcomes needs to be encouraged for its own sake, since working life constitutes such a major part of life in general. Such studies of outcomes beyond the production boundary as presently defined are growing rapidly.
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From page 296... ...
As long as there are firms that absorb the large instabilities and unpredictabilities of economic activity, and as a result provide relatively few amenities in the workplace, the other firms, free of such costs, can more easily afford the amenities they do provide to their more fortunate work force (Piore 19781. HOURS OF WORK AND USE OF TIME An obvious welfare dimension of productivity advance, defined in its strict economic sense, is that the increase in the national product over the years has been achieved with people working fewer and fewer hours per unit of output.
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From page 297... ...
Just what the impact on productivity would be of changing, reducing, or increasing the length of total working life is a question of increasing economic and social importance. In sum, while the technical and other difficulties of determining the economic productivity implications of shorter hours are enormous, the economic welfare implications of shorter hours could be considerable.
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From page 298... ...
Thus far, however, the empirical results have not moved much beyond the assumption that some variant of the prevailing wage rate is the basis for the exchange. The important empirical work growing out of this theoretical framework has dealt with several areas of major choice on a selective basis, including when and whether to marry, the labor force participation rate, health expenditures, having and rearing children, travel expenditures, investment in education and migration.
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From page 299... ...
In the case of health services, including visits to a doctor s office or a stay in a hospital, quantities of service are often difficult to measure. Prom a national accounting point of view, these quantities should be defined as closely as possible in terms of what the production agents are doing, that is to say, what doctors, nurses, orderlies, and administrators are engaged in: performing health examinations, surgeries, and other services.
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From page 300... ...
Thus, while the detailed quantities of such services very often cannot be specified with available data, the concept of production in the national accounting sense should be clear. Production efficiency criteria require that goods and services in health facilities be produced at least cost per unit and that these unit costs decrease over time.
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From page 301... ...
In the provision of health care, wise use of the production and welfare measures in relation to each other should contribute to economic and social welfare. THE ENVIRONMENT The healthful properties of air, water, and land are affected not only by economic production (industrial wastes)
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From page 302... ...
This type of calculation is a necessary ingredient in the analysis of economic and social welfare because it determines what the nation has to give up in the way of GNP goods and services to achieve a particular social welfare objective. WELFARE EFFECTS The Denison study says essentially that if an electric power company installs scrubbers in its smoke stacks to reduce toxic emissions, the opportunity cost per kilowatt hour of generated electricity is increased by the cost of those scrubbers.
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From page 303... ...
In many rural areas, for example, nature is the dominant polluter. The study concluded that air pollution damage does not impact more severely on the poor than the rich; but this finding has been questioned, largely because the measured income differences across the areas mask significant unmeasured differences within them.
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From page 304... ...
Just as the national accounts seek to measure final real output of the economy, the work on social accounting has sought to develop outcome measures for society as a whole. These outcome measures are presently in the form of social indicators covering areas of social concern such as health, public safety, educational attainment, social mobility (or its converse)
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From page 305... ...
This tool responds eventually to a combination of market forces and other forces exercised by producers, consumer groups, unions, trade associations, Sierra Clubs, our governments, other governments, etc. For statistical measurement to help in this process, continued improvements should be made both in the national accounting measures and in the more difficult welfare or social accounting measures.
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From page 306... ...
Knowledge of these impacts obtained from welfare-type estimates used in conjunction with national accounting cost estimates of controlling these impacts should help us make better choices of changes in output and consumption of marketed goods and services. We conclude with a caveat: The scientific formulation of economic and social concerns could have grave and unforeseen consequences, however, if the conclusions became the basis for dictatorial decisions.
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From page 307... ...
(1978) Income distribution issues viewed in a lifetime income perspective.
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From page 308... ...
United Nations (1978) Social Indicators: Preliminary Guidelines and Illustrative Series.
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