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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.

Suggested Citation

  • Timothy C. Sargent & Edgard R. Rodriguez, "undated". "Labour or Total Factor Productivity: Do We Need to Choose?," Working Papers-Department of Finance Canada 2001-04, Department of Finance Canada.
  • Handle: RePEc:fca:wpfnca:2001-04
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    References listed on IDEAS

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    1. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 249-283.
    2. Charles R. Hulten, 2000. "Total Factor Productivity: A Short Biography," NBER Working Papers 7471, National Bureau of Economic Research, Inc.
    3. 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.
    4. 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 342-362, June.
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    Cited by:

    1. D. Roderick Kiewiet, 2016. "What’s Right, and What’s Wrong, with “What is Wrong with the West’s Economies?” by Edmund Phelps," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 11-18, August.
    2. 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.
    3. Mohamed Amara & Khaled Thabet, 2016. "Firm and Regional Factors of Productivity: A Multilevel Analysis of Tunisian Manufacturing," Working Papers 1041, Economic Research Forum, revised 09 Jan 2016.
    4. Laura Hospido & Eva Moreno-Galbis, 2015. "The Spanish productivity puzzle in the Great Recession," Working Papers 1501, Banco de España;Working Papers Homepage.
    5. Mohamed Amara & AbdelRahmen El Lahga, 2015. "A note on MAR and Jacobs externalities in the Tunisian manufacturing industries," Letters in Spatial and Resource Sciences, Springer, vol. 8(2), pages 151-167, July.
    6. Andreas, Eder & Bernhard, Mahlberg & Bernhard, Stürmer, 2017. "Measuring and explaining productivity growth of renewable energy producers: An empirical study of Austrian biogas plants," MPRA Paper 79826, University Library of Munich, Germany.
    7. Bjuggren, Carl Magnus, 2018. "Employment protection and labor productivity," Journal of Public Economics, Elsevier, vol. 157(C), pages 138-157.
    8. 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.
    9. Alexander Murray, 2016. "Partial versus Total Factor Productivity: Assessing Resource Use in Natural Resource Industries in Canada," CSLS Research Reports 2016-20, Centre for the Study of Living Standards.
    10. 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.
    11. Jitao Tang & Rosanne Altshuler, 2015. "The spillover effects of outward foreign direct investment on home countries: evidence from the United States," Working Papers 1503, Oxford University Centre for Business Taxation.
    12. Başak Dalgıç & Burcu Fazlıoğlu & Deniz Karaoğlan, 2015. "Entry to foreign markets and productivity: Evidence from a matched sample of Turkish manufacturing firms," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(5), pages 638-659, August.
    13. Khaled Elmawazini, 2014. "FDI Spillovers, Efficiency Change and Host Country Labor Productivity: Evidence from GCC Countries," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(4), pages 399-411, December.
    14. Carrera, Leandro N. & Dunleavy, Patrick & Bastow, Simon, 2009. "Understanding productivity trends in UK tax collection," LSE Research Online Documents on Economics 25532, London School of Economics and Political Science, LSE Library.
    15. 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.
    16. 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.
    17. 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.
    18. 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.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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