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

Listed author(s):
  • Timothy C. Sargent
  • Edgard R. Rodriguez

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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Date of creation:
Handle: RePEc:fca:wpfnca:2001-04
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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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