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Alternative Methods for Measuring Productivity Growth

  • William D. Nordhaus

The present study is a contribution to the theory of the measurement of productivity growth. First, it examines the welfare-theoretic basis for measuring productivity growth and shows that the ideal welfare-theoretic measure is a chain index of productivity growth rates of different sectors which uses current output weights. Second, it lays out a technique for decomposing productivity growth which separates aggregate productivity growth into three factors -- the pure productivity effect, the effect of changing shares, and the effect of different productivity levels. Finally, it shows how to apply the theoretically correct measure of productivity growth and indicates which of the three different components should be included in a welfare-oriented measure of productivity growth. The study concludes that none of the measures generally used to measure productivity growth is consistent with the theoretically correct measure.

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File URL: http://www.nber.org/papers/w8095.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8095.

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Date of creation: Jan 2001
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Handle: RePEc:nbr:nberwo:8095
Note: EFG PR
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