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The Importance Of Skill Measurement For Growth Accounting

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  • ØIVIND A. NILSEN
  • ARVID RAKNERUD
  • MARINA RYBALKA
  • TERJE SKJERPEN

Abstract

In a growth accounting context one usually constructs a quality adjusted index of labor services by aggregating over predefined groups of workers, using the groups' relative wage bills as weights. In this article we suggest a method based on decomposing individual predicted wages into a skill-related part and a part unrelated to skill, where the former consists of both observed and unobserved components. The predicted wages, associated with individual skill attributes, are sorted and classified into deciles. The median predicted skill-related wage in each decile is used to construct an alternative skill-adjusted index of labor services. We find that Total Factor Productivity (TFP) growth decreases significantly when using the latter method. This means that when using the alternative method one explains more of the growth in labor productivity than what a more traditional labor quality adjustment procedure does.

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Bibliographic Info

Article provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.

Volume (Year): 57 (2011)
Issue (Month): 2 (06)
Pages: 293-305

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Handle: RePEc:bla:revinw:v:57:y:2011:i:2:p:293-305

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  1. John Haltiwanger & C J Krizan & Lucia Foster, 1998. "Aggregate Productivity Growth: Lessons From Microeconomic Evidence," Working Papers, Center for Economic Studies, U.S. Census Bureau 98-12, Center for Economic Studies, U.S. Census Bureau.
  2. Thomas Bolli & Mathias Zurlinden, 2012. "Measurement of labour quality growth caused by unobservable characteristics," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 44(18), pages 2297-2308, June.
  3. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, Elsevier, vol. 4(2), pages 115-145, May.
  4. Hervé Boulhol & Laure Turner, 2009. "Employment-Productivity Trade-off and Labour Composition," OECD Economics Department Working Papers 698, OECD Publishing.
  5. Haegeland, Torbjorn & Klette, Tor Jakob & Salvanes, Kjell G, 1999. " Declining Returns to Education in Norway? Comparing Estimates across Cohorts, Sectors and Over Time," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 101(4), pages 555-76, December.
  6. Guido Schwerdt & Jarkko Turunen, 2007. "Growth In Euro Area Labor Quality," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 53(4), pages 716-734, December.
  7. Fosgerau, Mogens & Jensen, Svend E Hougaard & Sorensen, Anders, 2002. "Measuring Educational Heterogeneity and Labor Quality: A Note," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 48(2), pages 261-69, June.
  8. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers, CIRANO 94s-23, CIRANO.
  9. Charles R. Hulten, 2001. "Total Factor Productivity. A Short Biography," NBER Chapters, in: New Developments in Productivity Analysis, pages 1-54 National Bureau of Economic Research, Inc.
  10. Arvid Raknerud & Dag Rønningen & Terje Skjerpen, 2007. "A Method For Improved Capital Measurement By Combining Accounts And Firm Investment Data," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 53(3), pages 397-421, 09.
  11. Nadim Ahmad & François Lequiller & Pascal Marianna & Dirk Pilat & Paul Schreyer & Anita Wölfl, 2003. "Comparing Labour Productivity Growth in the OECD Area: The Role of Measurement," OECD Science, Technology and Industry Working Papers 2003/14, OECD Publishing.
  12. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2009. "Lumpy investments, factor adjustments, and labour productivity," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 104-127, January.
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