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A Generalized Exactly Additive Decomposition of Aggregate Labor Productivity Growth

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  • Jesus C. Dumagan

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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  • Jesus C. Dumagan, 2013. "A Generalized Exactly Additive Decomposition of Aggregate Labor Productivity Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(1), pages 157-168, March.
    • Handle: RePEc:bla:revinw:v:59:y:2013:i:1:p:157-168
    DOI: 10.1111/roiw.2013.59.issue-1
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    Cited by:

    1. V. Blyznyuk & Y. Yuryk, 2018. "Asymmetricity in the development of the industrial segment of Ukrainian labor market," Economy and Forecasting, Valeriy Heyets, issue 4, pages 65-80.
    2. Ivan Mendieta‐Muñoz & Codrina Rada & Rudi von Arnim, 2021. "The Decline of the US Labor Share Across Sectors," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(3), pages 732-758, September.
    3. 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.
    4. 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.
    5. 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).
    6. 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.
    7. Roberta Montebello & Jude Darmanin, 2021. "Saving behaviour in Malta: Insights from the Household Budgetary Survey," CBM Working Papers WP/04/2021, Central Bank of Malta.
    8. Jingfeng Zhao & Jianmin Tang, 2015. "Industrial Structural Change and Economic Growth in China, 1987–2008," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 23(2), pages 1-21, March.
    9. 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.
    10. 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.
    11. 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.
    12. A. V. Gotovsky, 2025. "Challenges to Economic Growth of the Republic of Belarus in the New Reality," Studies on Russian Economic Development, Springer, vol. 36(1), pages 21-34, February.
    13. Claire Giordano & Francesco Zollino, 2021. "Long‐Run Factor Accumulation And Productivity Trends In Italy," Journal of Economic Surveys, Wiley Blackwell, vol. 35(3), pages 741-803, July.
    14. Sam Jones & Finn Tarp, 2015. "Understanding Mozambique's growth experience through an employment lens," WIDER Working Paper Series wp-2015-109, World Institute for Development Economic Research (UNU-WIDER).
    15. 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.
    16. 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.
    17. 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.
    18. Dumagan, Jesus C., 2012. "Consistent GDP Aggregation and Purchasing Power Parity," Discussion Papers DP 2012-02, Philippine Institute for Development Studies.
    19. 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.
    20. Bert Balk, 2014. "Dissecting aggregate output and labour productivity change," Journal of Productivity Analysis, Springer, vol. 42(1), pages 35-43, August.
    21. Weimin Wang, 2024. "High Inflation in 2022 in Canada: Demand–pull or supply–push?," Economic and Social Reports 202400500005e, Statistics Canada, Analytical Studies and Modelling Branch.
    22. 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.
    23. Fabio Clementi & Marco Gallegati & Mauro Gallegati, 2015. "Growth and Cycles of the Italian Economy Since 1861: The New Evidence," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(1), pages 25-59, March.
    24. 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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