A good measure of productivityA good measure of productivity

Eric BartelsmanEric BartelsmanVrije Universiteit Amsterdam and Tinbergen InstituteVrije Universiteit Amsterdam and Tinbergen Institute

Washington, World Bank, Washington, World Bank, October 31, 2005October 31, 2005

OverviewOverviewWho Cares about Productivity? Why? Which Who Cares about Productivity? Why? Which

measures?measures?Sources of Productivity DataSources of Productivity DataDesigning a Research AgendaDesigning a Research Agenda

Statistical RoadmapStatistical Roadmap Policy QuestionsPolicy Questions

Information for PolicyInformation for PolicyAppropriate indicators depend on policy Appropriate indicators depend on policy

problemsproblems System of National Accounts (SNA) developed by System of National Accounts (SNA) developed by

Stone, provides information to track Keynesian Stone, provides information to track Keynesian problem of demand shortfallproblem of demand shortfall

Schumpeterian view on growth (and cycles) lacks Schumpeterian view on growth (and cycles) lacks systematic framework of data collection and systematic framework of data collection and presentationpresentation

Information for PolicyInformation for PolicyMonetary policy requires:Monetary policy requires:

Indicators of potential output Indicators of potential output Supply side: labor, capital services, TFPSupply side: labor, capital services, TFP

Indicators of resource bottlenecksIndicators of resource bottlenecksUnit labor costsUnit labor costs

Indicators of state of business cycleIndicators of state of business cycleCyclicality of productivity, prices, wagesCyclicality of productivity, prices, wages

Research to understand economic mechanismsResearch to understand economic mechanismsMany uses of productivity informationMany uses of productivity information

Information for PolicyInformation for PolicyStructural Economic PolicyStructural Economic Policy

Competition, Privatization, DeregulationCompetition, Privatization, Deregulation Innovation, R&DInnovation, R&D Resource markets (unemployment, labor quality, Resource markets (unemployment, labor quality,

financial markets, imported inputs)financial markets, imported inputs)……needs performance indicatorsneeds performance indicators

International/sectoral productivity comparisonsInternational/sectoral productivity comparisons Comparisons over timeComparisons over time Proper ‘evaluation’: treatment/control groupsProper ‘evaluation’: treatment/control groups

Which measure of productivityWhich measure of productivity

This is a practical issue and depends on This is a practical issue and depends on question at hand and on question at hand and on availability/reliability of dataavailability/reliability of data

Some findings are robust across measures, Some findings are robust across measures, while other depend crucially on measure while other depend crucially on measure usedused

Importance of MeasurementImportance of MeasurementProductivity is output/inputProductivity is output/input

Measurement errors do not cancelMeasurement errors do not cancel Output or input measures: apples and oranges Output or input measures: apples and oranges

problem (across variables, across units, over problem (across variables, across units, over time)time)

Practical problems: Practical problems: collection of data often not ‘consistent’collection of data often not ‘consistent’Data often not integrated, or integrated in Data often not integrated, or integrated in

different ways over time or across unitsdifferent ways over time or across units

OverviewOverviewWho Cares about Productivity? Why? Who Cares about Productivity? Why?

Which measures?Which measures?Sources of Productivity DataSources of Productivity DataDesigning a Research AgendaDesigning a Research Agenda

Statistical RoadmapStatistical Roadmap Policy QuestionsPolicy Questions

Data SourcesData SourcesLevel of aggregationLevel of aggregation

Macro: National Accounts and Labor Force Macro: National Accounts and Labor Force SurveySurvey

Micro: firm or establishment census or surveysMicro: firm or establishment census or surveys Sectoral: Top-down, bottom-up, integratedSectoral: Top-down, bottom-up, integrated

Ideally, data would be consistent and Ideally, data would be consistent and integrated at each level of aggregationintegrated at each level of aggregation

INPUT-OUTPUT TABLEINPUT-OUTPUT TABLE

INDUSTRIESINDUSTRIESFINAL FINAL

DEMN.DEMN.GRS. GRS. OUT.OUT.

INDIND

VALVALADDADD

GDP orGDP orGDIGDI

Consistent, Integrated DatasetConsistent, Integrated Dataset See Beaulieu and Bartelsman (2005) See Beaulieu and Bartelsman (2005) DatasetDataset

detailed information on the gross output, value added, final demand detailed information on the gross output, value added, final demand expenditures, and use of intermediate inputs by industryexpenditures, and use of intermediate inputs by industry

ConsistentConsistent dataset where the underlying components are based on the same dataset where the underlying components are based on the same

definitions and industry classificationsdefinitions and industry classifications IntegratedIntegrated

despite the numerous data sources employed, the estimates conform despite the numerous data sources employed, the estimates conform to the accounting identities linking production, income, and to the accounting identities linking production, income, and expenditures expenditures

Comparisons of NA vs micro Comparisons of NA vs micro sourcessources

Comparisons of NA vs micro Comparisons of NA vs micro sourcessources

Sources of labor dataSources of labor dataLabor input not in SNA (sometimes in satellite acct)Labor input not in SNA (sometimes in satellite acct)Main source: household surveyMain source: household surveyEmployment and earnings surveys (excl small firms, Employment and earnings surveys (excl small firms,

often mfg, mng, util)often mfg, mng, util)Business Statistics (survey or census)Business Statistics (survey or census)Business registerBusiness registerSocial Insurance registerSocial Insurance register

Comparisons of sources of labor Comparisons of sources of labor datadata

Source: Productivity growth in Jamaica 1991-2000, Eric Bartelsman, report for WB

Sources of price dataSources of price dataIdeal: deflators for each cell of IO; deflators for Ideal: deflators for each cell of IO; deflators for

outputs and inputs at micro leveloutputs and inputs at micro levelAggregate or sectoral deflators: ‘Schreyer method’Aggregate or sectoral deflators: ‘Schreyer method’Expenditure PPPs vs Ind-of-origin PPPExpenditure PPPs vs Ind-of-origin PPPFor micro level: assume constant markup and use For micro level: assume constant markup and use

nominal salesnominal sales

OverviewOverviewWho Cares about Productivity? Why? Who Cares about Productivity? Why?

Which measures?Which measures?Sources of Productivity DataSources of Productivity DataDesigning a Research AgendaDesigning a Research Agenda

Statistical RoadmapStatistical Roadmap Policy QuestionsPolicy Questions

Statistical RoadmapStatistical RoadmapFor EU countries: EU KLEMSFor EU countries: EU KLEMS

STAN for OECD, multiple sources for USSTAN for OECD, multiple sources for USOther countries: stimulate similar work, but process Other countries: stimulate similar work, but process

directly from original datasourcedirectly from original datasourceTry to harmonize types of original sources available, Try to harmonize types of original sources available,

and methods used to create consistent integrated dataand methods used to create consistent integrated data

Provision of metadata.Approval of access.Disclosure analysis

of cross-country tables.Disclosure analysis of Publication

Res

earc

her

Policy QuestionResearch Design Program Code

Publication

Net

wor

k Metadata

Networkmembers

Cross-countryTables

NSO

sDistributed micro data research

Recent Productivity Research: Recent Productivity Research: does it answer policy questions?does it answer policy questions?

Labour Productivity LevelsLabour Productivity Levels cross-country, sectoral timeseriescross-country, sectoral timeseries

Growth AccountingGrowth Accounting Contribution of ICT, other capital, TFPContribution of ICT, other capital, TFP

Statistical AnalysisStatistical Analysis Cross-country convergence (million regressions)Cross-country convergence (million regressions) Sectoral and micro-level datasetsSectoral and micro-level datasets

Convergence in Labor Convergence in Labor Productivity LevelsProductivity Levels

What drives convergence process?What drives convergence process? Many factors are significant in cross-country growth Many factors are significant in cross-country growth

regressionsregressionsDo we really know if 10% above or below is Do we really know if 10% above or below is

meaningfulmeaningful international price comparisonsinternational price comparisons definitions of output and inputdefinitions of output and input

Why converge to ‘average’ of best country?Why converge to ‘average’ of best country?But: we learn who belongs to which ‘convergence But: we learn who belongs to which ‘convergence

clubs’clubs’

Growth AccountingGrowth Accounting

US EU NL

Labor prod. 1.9 1.4 1.1

ICT .7 .4 .6

Other Capital

.3 .5 .1

TFP .8 .5 .5

Source: van Ark & O’Mahony

1995-2000: contribution in pct-points to average annual growth

What was the question?What was the question?No role for policy environment or spilloversNo role for policy environment or spillovers

Only factors that are explicitly purchased can contribute to Only factors that are explicitly purchased can contribute to output in the frameworkoutput in the framework

No indication of market failuresNo indication of market failures It is assumed that representative firm makes optimizing It is assumed that representative firm makes optimizing

decisionsdecisionsNo accounting of No accounting of sourcesource of higher quality inputs of higher quality inputs

Contribution of quality of capital or labor to output can be Contribution of quality of capital or labor to output can be computedcomputed

Does contribution of input X (e.g. ICT, or foreign-Does contribution of input X (e.g. ICT, or foreign-owned capital) differ across countries/sectors/time?owned capital) differ across countries/sectors/time?

And: most of output growth is accounted forAnd: most of output growth is accounted for

Sectoral ComparisonsSectoral Comparisons

US EU

Labor Productivity

2.2 .7

ICT- Producing

.6 .5

ICT-Using 1.3 .3

Other .3 .0

Source: van Ark & O’Mahony

1995-2002: contribution in pct-points to average annual growth

Sectoral and micro dataSectoral and micro dataEconometric evidence in panel data settingEconometric evidence in panel data setting

R&DR&DShifting of R&D based on tax-incentives Shifting of R&D based on tax-incentives Spillover benefits of R&D done abroadSpillover benefits of R&D done abroad

ICTICTFirm-level evidence on return to ICT investmentFirm-level evidence on return to ICT investmentDifferences by Ownership statusDifferences by Ownership status

Corporate TaxesCorporate TaxesCross-country ‘productivity’ response to relative tax-Cross-country ‘productivity’ response to relative tax-

rate shiftsrate shifts Policy evaluation of ‘innovation vouchers’Policy evaluation of ‘innovation vouchers’ Many other studies: trade-openness, competition, trainingMany other studies: trade-openness, competition, training