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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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Bibliographic Info

Paper provided by Philippine Institute for Development Studies in its series Discussion Papers with number DP 2011-19.

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Length: 12
Date of creation: 2011
Date of revision:
Handle: RePEc:phd:dpaper:dp_2011-19

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

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References

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  1. Dekle, Robert & Vandenbroucke, Guillaume, 2012. "A quantitative analysis of China's structural transformation," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 119-135.
  2. David E. Bloom & David Canning & Pia N. Malaney, 1999. "Demographic Change and Economic Growth in Asia," CID Working Papers 15, Center for International Development at Harvard University.
  3. David E. BLOOM & Jocelyn E. FINLAY, 2009. "Demographic Change and Economic Growth in Asia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 4(1), pages 45-64.
  4. Jianmin Tang & Weimin Wang, 2004. "Sources of aggregate labour productivity growth in Canada and the United States," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 421-444, May.
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Cited by:
  1. Bert Balk, 2014. "Dissecting aggregate output and labour productivity change," Journal of Productivity Analysis, Springer, vol. 42(1), pages 35-43, August.
  2. Dumagan, Jesus C., 2012. "Consistent GDP Aggregation and Purchasing Power Parity," Discussion Papers DP 2012-02, Philippine Institute for Development Studies.
  3. 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.
  4. Ricardo de Avillez, 2013. "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.

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