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Labour or Total Factor Productivity: Do We Need to Choose?

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  • Timothy C. Sargent
  • Edgard R. Rodriguez

Abstract

Two competing measures of productivity are commonly used by both academics and policy makers. These are labour productivity—output per hour—and total factor productivity (TFP)—which measures productivity net of the contribution of capital. Which measure is the ‘best’ has been the subject of recent debate in academic and policy circles. In this paper, we argue that both measures have their place, and that neither tells the whole story. TFP is more useful over the long run, assuming that one is confident about the underlying growth process and the quality of capital stock data, whereas labour productivity is more reliable in the short run, when there is doubt about the underlying growth process, or when capital stock data are unreliable. Deux mesures concurrentes de la productivité sont habituellement utilisées par les universitaires et les décideurs. Il s’agit de la productivité du travail — la productivité par heure de travail —et de la productivité totale des facteurs —, qui mesure la productivité, déduction faite de la contribution du capital. La question de savoir quelle est la « meilleure » mesure a fait l’objet de débats récemment dans les milieux universitaires et politiques. Dans ce document, nous soutenons que les deux mesures sont utiles et que ni l’une ni l’autre ne donne une image complète de la situation. La productivité totale des facteurs est plus utile à long terme, en supposant que l’on ait confiance au processus de croissance sous-jacent et à la qualité des données sur le stock de capital, tandis que la productivité du travail est plus fiable à court terme, lorsqu’on doute du processus de croissance sous-jacent ou que les données sur le stock de capital ne sont pas fiables.

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Paper provided by Department of Finance Canada in its series Working Papers-Department of Finance Canada with number 2001-04.

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Handle: RePEc:fca:wpfnca:2001-04

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  1. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
  2. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
  3. Charles R. Hulten, 2000. "Total Factor Productivity: A Short Biography," NBER Working Papers 7471, National Bureau of Economic Research, Inc.
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Cited by:
  1. Tibor Lalinsky, 2013. "Firm competitiveness determinants: results of a panel data analysis," Working and Discussion Papers WP 4/2013, Research Department, National Bank of Slovakia.
  2. Andrew Sharpe & Olivier Guibaud, 2005. "Indicators of Innovation in Canadian Natural Resource Industries," CSLS Research Reports 2005-03, Centre for the Study of Living Standards.
  3. R. Quentin Grafton & Stephen Knowles & P. Dorian Owen, 2002. "Social Divergence and Productivity: Making a Connection," The Review of Economic Performance and Social Progress, in: Andrew Sharpe, Executive Director & France St-Hilaire, Vice-President , Research & Keith Banting, Di (ed.), The Review of Economic Performance and Social Progress 2002: Towards a Social Understanding of Productivity, volume 2 Centre for the Study of Living Standards & The Institutute for Research on Public Policy.
  4. Andrew Sharpe, 2001. "Productivity Trends in the Construction Sector in Canada: A Case of Lagging Technical Progress," International Productivity Monitor, Centre for the Study of Living Standards, vol. 3, pages 52-68, Fall.
  5. Luthfi Fatah, 2007. "The Potentials of Agro-Industry for Growth Promotion and Equality Improvement in Indonesia," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture, vol. 4(1), pages 57-74, June.
  6. Basak Dalgic & Burcu Fazlioglu & Deniz Karaoglan, 2014. "Entry to Foreign Markets and Productivity: Evidence from a Matched Sample of Turkish Manufacturing Firms," ERC Working Papers 1403, ERC - Economic Research Center, Middle East Technical University, revised May 2014.
  7. Erdal Atukeren, 2005. "R&D Races and Spillovers between the EU and the US: Some Causal Evidence," KOF Working papers 05-105, KOF Swiss Economic Institute, ETH Zurich.
  8. Carlo Bernini Carri, 2005. "Productivity Growth and Convergence between Agriculture and Industry in EU Countries," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 4, November.
  9. Khaled Elmawazini & Gamal Atallah & Sonny Nwankwo & Yazid Dissou, 2013. "US Foreign Affiliates, Technology Diffusion and Host Country Human Development: Human Development Index versus Human Capital," Industry and Innovation, Taylor & Francis Journals, vol. 20(1), pages 69-91, January.
  10. Leandro N. Carrera & Patrick Dunleavy & Simon Bastow, 2009. "Understanding productivity trends in UK tax collection," LSE Research Online Documents on Economics 25532, London School of Economics and Political Science, LSE Library.

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