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A Generalized Exactly Additive Decomposition of Aggregate Labor Productivity Growth

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  • Dumagan, Jesus C.

Abstract

Aggregate labor productivity (ALP) growth--i.e., growth of output per unit of labor--may be decomposed into additive contributions due to within-sector productivity growth effect, dynamic structural reallocation effect (Baumol effect), and static structural reallocation effect (Denison effect) of cross-sectional components (e.g., industry or region) of output and labor. This paper implements ALP growth decomposition that is "generalized" to output in constant prices and to output in chained prices (i.e., chained volume measure or CVM) and "exactly additive" since with either output the sum of contributions exactly equals "actual" ALP growth. It compares this "generalized exactly additive" (GEAD) decomposition to the "traditional" (TRAD) ALP growth decomposition devised for output in constant prices. The results show GEAD and TRAD are exactly additive when output is in constant prices but GEAD is exactly additive while TRAD is not when output is in CVM. Also, GEAD components are empirically purer than or analytically superior to those from TRAD. Moreover, considering that contributions to ALP growth can be classified by industry or region each year over many years, GEAD provides a more well-grounded picture over time of industrial or regional transformation than TRAD. Therefore, GEAD should replace TRAD in practice.

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  • Dumagan, Jesus C., 2011. "A Generalized Exactly Additive Decomposition of Aggregate Labor Productivity Growth," Discussion Papers DP 2011-19, Philippine Institute for Development Studies.
    • Handle: RePEc:phd:dpaper:dp_2011-19
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    Cited by:

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    3. Ilya B. Voskoboynikov, 2020. "Structural Change, Expanding Informality and Labor Productivity Growth in Russia," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(2), pages 394-417, June.
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    6. Ricardo de Avillez, 2012. "Sectoral Contributions to Labour Productivity Growth in Canada: Does the Choice of Decomposition Formula Matter?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 24, pages 97-117, Fall.
    7. Hiroshi Nishi, 2016. "Sources and Consequences of Productivity Growth Dynamics: Is Japan Suffering from Baumol's Diseases?," Discussion papers e-16-003, Graduate School of Economics , Kyoto University.
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    9. Bert Balk, 2014. "Dissecting aggregate output and labour productivity change," Journal of Productivity Analysis, Springer, vol. 42(1), pages 35-43, August.
    10. Ricardo de Avillez, 2012. "Sectoral Contributions to Labour Productivity Growth: Does the Choice of Decomposition Formula Matter?," CSLS Research Reports 2012-09, Centre for the Study of Living Standards.
    11. Marshall Reinsdorf, 2015. "Measuring Industry Contributions to Labour Productivity Change: A New Formula in a Chained Fisher Index Framework," International Productivity Monitor, Centre for the Study of Living Standards, vol. 28, pages 3-26, Spring.
    12. Dumagan, Jesus C., 2012. "Consistent GDP Aggregation and Purchasing Power Parity," Discussion Papers DP 2012-02, Philippine Institute for Development Studies.
    13. W. Erwin Diewert, 2016. "Decompositions of Productivity Growth into Sectoral Effects: Some Puzzles Explained," Springer Proceedings in Business and Economics, in: William H. Greene & Lynda Khalaf & Robin Sickles & Michael Veall & Marcel-Cristian Voia (ed.), Productivity and Efficiency Analysis, edition 1, chapter 0, pages 1-13, Springer.
    14. Zhao, Jingfeng & Tang, Jianmin, 2018. "Understanding agricultural growth in China: An international perspective," Structural Change and Economic Dynamics, Elsevier, vol. 46(C), pages 43-51.
    15. W. Erwin Diewert & Kevin J. Fox, 2017. "Decomposing Value Added Growth into Explanatory Factors," Discussion Papers 2017-02, School of Economics, The University of New South Wales.
    16. Zhao, Jingfeng & Tang, Jianmin, 2018. "Industrial structure change and economic growth: A China-Russia comparison," China Economic Review, Elsevier, vol. 47(C), pages 219-233.
    17. Matthew Calver and Alexander Murray, 2016. "Decomposing Multifactor Productivity Growth in Canada by Industry and Province, 1997-2014," CSLS Research Reports 2016-19, Centre for the Study of Living Standards.
    18. Jianmin Tang & Weimin Wang, 2015. "Economic Growth in Canada and the United States: Supply-Push or Demand-Pull?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(4), pages 773-798, December.
    19. Sam Jones & Finn Tarp, 2015. "Understanding Mozambique's growth experience through an employment lens," WIDER Working Paper Series 109, World Institute for Development Economic Research (UNU-WIDER).
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    Keywords

    chained volume measure; labor productivity; Philippines; output in constant prices; reallocation effects;
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