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Recent developments in productivity measurement
Paul SchreyerOECD Statistics DirectorateCanberra, 20 November 2012
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• Productivity = output/input• Issues:
– Identifying, measuring and aggregating inputs and outputs
– Level of measurement (economy, industry, firm)
• Academic community dealing with productivity measurement and analysis
• World KLEMS network• NSOs: no clear trend
Introduction
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1. Bringing nature into the productivity picture
2. The firm level: productivity measurement with micro-data
No claim for comprehensive presentation of recent developments
This presentation
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Bringing nature into the productivity picture
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• Typical inputs: labour, produced capital, intermediate inputs
• Often neglected: non-produced natural assets:– Mineral resources– Soil/land– Timber– Aquatic resources– Water
Bringing nature into the picture – input side (1)
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• Why important?– Assessing contribution of natural assets
to economic growth– Measuring productivity correctly– Policy implication: is growth driven by
MFP or by natural assets– Note: without measurement, direction
of bias unknown
Bringing nature into the picture – input side (2)
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Volume index of subsoil asset removals, Australia, 1989=100
0,0
50,0
100,0
150,0
200,0
250,019
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
11
Source: OECD calculations, based on ABS data.
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Effect of including natural resource input on measured productivity growth:
• Traditional MFP > adjusted MFP if :– natural resource input growth >
traditional input growth – i.e., total input growth has been
understated– i.e., traditional MFP growth has been
overstated• And vice versa
No unambiguous direction
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Norway – Difference between adjusted and traditional MFP growth
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
-4
-3
-2
-1
0
1
2
3
4
Time
Diffe
renc
e in
per
cent
age
poin
ts
Traditional MFP over-stated
Traditional MFP under-stated
Source: OECD, work in progroess.
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• Capture changing marginal extraction costs (which may be increasing)
• Capturing changing quality in the resource itself eg declining soil quality
failing to do so will overstate measured contribution of natural resource to output and understate MFP
Challenge: quality of natural resource input
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• Study by Productivity Commission (Topp, Soames, Parham, Bloch 2008):
• Similar in spirit except that mining output is adjusted for declining yields
• Underlying rate of productivity growth is around 2.5 per cent p. a., compared with stagnant standard MFP (1974 to 2007)
Natural resource input has grown less quickly than other inputs, so MFP was understated by traditional measure
Effects on productivity measures: Australia’s mining industry
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• Production processes often accompanied by undesirable outputs, e.g., emissions
• From producer and MFP measurement perspective:
• Relevant in presence of environmental policies:– explicit price (e.g., tax) or– implicit price (marginal abatement costs
due to regulation)• Are traditional MFP measures over-
or understated?
Bringing nature into the picture – output side (1)
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Example:• Given inputs (labour, capital,…)• Rising traditional output• Constant emissions
adjusted MFP > traditional MFP
Productivity growth was required to keep emissions at bay
Again, no unambiguous effect on measured productivity (1)
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• But overstatement of traditional MFP if emissions grow quicker than traditional output
• For many pollutants (NOx, Sox, CO2,…) relative decoupling in many OECD countries
Understatement of traditional MFP
Again, no unambiguous effect on measured productivity (2)
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• Producer perspective = private valuation– marginal abatement cost for producer
• Welfare perspective = social valuation– marginal cost to society = producer costs +
consumer costs + externalities• Both perspectives meaningful but should
not be mixed up• If productivity measurement is based on
producer theory, producer perspective is called for
Private and social valuation
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• As part of green growth indicator work
– MFP adjustment with natural asset inputs
– MFP adjustment with undesirable outputs
– Index of natural resources
OECD work in this area…
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• System of Integrated Environmental and Economic Accounts
• Adopted at UN level in 2012• Consistent accounting for
environment-economy interaction• Basis for indicator work• Unifying element: balance sheets
– Stocks, additions, removals– Physical and monetary valuation
• Major task ahead: implementation
Important international development: SEEA
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The firm level: productivity measurement with micro-
data
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• Drawbacks– No prices, capital proxy, employees,
incomplete sector coverage, short time-spans
• Avantages– Entry, exit, reallocation– Within-firm cycle/growth– Understanding/measuring both firm-
level levers and environmental factors driving growth
Firm-level measurement
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• Huge productivity dispersion– Even within very narrowly defined
industries– Firm size plays an important role– But how accurately are outputs
measured?
Stylised facts from micro estimates (1)
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UK: Labour productivity by firm size
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2003 2004 2005 2006 2007 2008 2009 201075
80
85
90
95
100
105
110
Indices: 2007 = 100
Medium businesses(50-249 employees)
Small businesses (0-49 employees)
Large enterprises (250+ employees)
Source: J. Saleheen, Bank of England 2012
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• Reallocation or resources to high-productivity producers important
• Competition—consumers can easily switch suppliers
• Labor and capital market flexibility• Summary measure of reallocation:
correlation between productivity and market share
Stylised facts from micro estimates (2)
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0
0.1
0.2
0.3
0.4
0.5
0.6
Germ
any
UK
Argen
tina
Nethe
rland
s
Franc
e
Portu
gal
Chile
US
Taiwan
Korea
Correlation between Productivity and Market Share
Source: Ch. Syverson November 2012
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• Large volumes of data• Confidentiality issues
– Small countries– Narrowly defined industries
• No international standards – reduced comparability
• NSOs have taken up issue
Firm-level measurement requires dealing with…
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Conclusions
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• Nature of productivity implies cumulation of measurement challenges
• Quality of source data (national accounts, firm-level data) key
• Integrating productivity measurement into official statistics important but not yet widespread
Conclusions (1)
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• Tricky output measurement in particular in:– Financial services– Health, education, general administration– Undesirable outputs
• Tricky input measurement:– Hours worked by industry and by skills– R&D capital (new in national accounts)– Natural capital
• Intangibles
Conclusions (2)
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Thank you!