08 productivity

22
Copyright © 2009 Pearson Education, Inc. Publishing as Pearson Addison-Wesley Chapter 7 MEASURING PRODUCTIVITY

Upload: froso-erotokritou

Post on 12-Nov-2014

13 views

Category:

Documents


1 download

DESCRIPTION

productivity

TRANSCRIPT

Page 1: 08 Productivity

Copyright © 2009 Pearson Education, Inc. Publishing as Pearson Addison-Wesley

Chapter 7

MEASURING PRODUCTIVITY

Page 2: 08 Productivity

Productivity

Productivity = effectiveness with which factors of production (such as K, L) are converted into output

So far: looked at accumulation of factors of production DISREGARDING productivity differences

• “A” often assumed to be the same across countries

This is typically not the case

We use “development accounting” and “growth accounting” to learn about and quantify the role of productivity

3-2

Page 3: 08 Productivity

Where kαh1-α represents an aggregate measure of “factors of production” (per worker) and A is “productivity”

7-3

Productivity in the Cobb-Douglas production function

Starting from Y = AKα(hL)1-α, we can rewrite in per-worker terms and obtain y=Akαh1-α.

In turn:

Page 4: 08 Productivity

7-4

Graphics: productivity, factors of production and output

Page 5: 08 Productivity

Copyright © 2009 Pearson Education, Inc. Publishing as Pearson Addison-Wesley 7-5

How to infer productivity from data on output and factor accumulation

Page 6: 08 Productivity

7-6

A formula to calculate productivity from data on output and factor accumulation

Page 7: 08 Productivity

7-7

Example: calculating productivity in Country 1 and Country 2

If α=1/3, productivity in country 1 is twice as much as in country 2

Page 8: 08 Productivity

Development accounting = application of formula to compute productivity from data on output and factor accumulation 7-8

Table 7.2 Development Accounting

Page 9: 08 Productivity

7-9

Figure 7.2 & 7.4 Role of Factors of Production and Productivity in Determining Output per Worker, 2005

Page 10: 08 Productivity

Copyright © 2009 Pearson Education, Inc. Publishing as Pearson Addison-Wesley 7-10

Table 7.3 Data for Calculating Productivity Growth in Erewhon

Page 11: 08 Productivity

Growth accounting

Growth accounting is a technique to compute productivity growth (from Solow 1957)

The same formula y=Akαh1-α that we used before can be transformed in growth rates (How? Take the derivative of both left-hand and right-hand side of the equation with respect to time and then divide the result by y)

The following expression is obtained

gy = gA + (α gk + (1-α) gh)

and then used to compute the growth rate of productivity as a residual:

gA = gy - (α gk + (1-α) gh)

Not by chance gA is labelled the “Solow residual”

7-11

Page 12: 08 Productivity

7-12

Figure 7.5 & 7.6 Role of factors of production and productivity in determining Gdp growth, 1970–2005

Page 13: 08 Productivity

The “summary of our ignorance”

The Solow residual gA has also been named the “summary of our ignorance”. But the same applies to our measure of “A”

Why? For a simple reason

If we measure imperfectly y, k or h, any mismeasurement will affect the measured value of gA and A

So our measures of productivity levels and growth are a mixture of actual productivity and measurement error. We should be careful interpreting their values

More problematic interpreting levels than growth rates• If measured A = z (constant coefficient, different from one) times A (the

true value of A!), this means that our measure of A is biased. But our measure of gA is not (check!)

7-13

Page 14: 08 Productivity

Copyright © 2009 Pearson Education, Inc. Publishing as Pearson Addison-Wesley

Chapter 10

EFFICIENCY

Page 15: 08 Productivity

Why productivity differences – over time and across countries

Productivity differs a lot between countries. But not all differences are due to technology

This may be true for a country over time

Yet if we compare productivity growth across countries, differences are likely due to something else

• Cellular phones employed everywhere, not just in the US, Finland or Japan

• If people in India use the same tech as in the US, why are their productivity levels 65% lower than the US levels?

EFFICIENCY must play a role

How do we know whether it is technology or efficiency?7-15

Page 16: 08 Productivity

10-16

Decompose A into T (technology) and E (efficiency)

Page 17: 08 Productivity

How to go from A to T and E

Starting point: the US growth of A was 0.66% per year in 1970-2005. If this only came from technology, this means that E in the US economy remained constant

ThenT2005,US = T1970,US (1.0066)35

More generally, for a technology developed G years ago:T2005,US = T2005-G,US (1+g)G

Now: suppose that India is G years backwards in terms of technology than the US. It follows that:

T2005,US = T2005,India (1.0066)35

And then:

7-17

Page 18: 08 Productivity

Had efficiency stayed constant, then the technology gap between the US would be 0.94 (=1.0066-10)

10-18

Technology gap between India and the US

Page 19: 08 Productivity

Conclusion: most of the productivity gap between India and the US would stem from efficiency

10-19

In turn, the efficiency gap would be =0.37 (so as to give AIndia/AUS=0.35)

Page 20: 08 Productivity

Five types of inefficiency

Inefficiency may stem from five sources• Unproductive activities• Idle resources• Misallocation of factors among sectors• Misallocation of factors among firms• Technology blocking

7-20

Page 21: 08 Productivity

10-21

Figure 10.3 Efficient Allocation of Labor Between Sectors

Page 22: 08 Productivity

10-22

Figure 10.4 Overallocation of Labor to Sector 1