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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.

Suggested Citation

  • Dumagan, Jesus C., 2011. "A Generalized Exactly Additive Decomposition of Aggregate Labor Productivity Growth," Discussion Papers DP 2011-19, Philippine Institute for Development Studies.
  • Handle: RePEc:phd:dpaper:dp_2011-19
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    References listed on IDEAS

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    1. David E. Bloom & David Canning & Jocelyn E. Finlay, 2010. "Population Aging and Economic Growth in Asia," NBER Chapters,in: The Economic Consequences of Demographic Change in East Asia, NBER-EASE Volume 19, pages 61-89 National Bureau of Economic Research, Inc.
    2. 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.
    3. Dekle, Robert & Vandenbroucke, Guillaume, 2012. "A quantitative analysis of China's structural transformation," Journal of Economic Dynamics and Control, Elsevier, pages 119-135.
    4. David E. BLOOM & Jocelyn E. FINLAY, 2009. "Demographic Change and Economic Growth in Asia," Asian Economic Policy Review, Japan Center for Economic Research, pages 45-64.
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    Cited by:

    1. Diewert, Erwin, 2014. "Decompositions of Productivity Growth into Sectoral Effects: Some Puzzles Explained," Economics working papers erwin_diewert-2014-48, Vancouver School of Economics, revised 03 Nov 2014.
    2. 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.
    3. Bert Balk, 2014. "Dissecting aggregate output and labour productivity change," Journal of Productivity Analysis, Springer, pages 35-43.
    4. 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.
    5. 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, pages 97-117.
    6. 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).
    7. 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.
    8. Bert Balk, 2014. "Dissecting aggregate output and labour productivity change," Journal of Productivity Analysis, Springer, pages 35-43.
    9. 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.
    10. 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, pages 3-26.
    11. Dumagan, Jesus C., 2012. "Consistent GDP Aggregation and Purchasing Power Parity," Discussion Papers DP 2012-02, Philippine Institute for Development Studies.
    12. Ilya B. Voskoboynikov, 2017. "Structural Change, Expanding Informality and Labour Productivity Growth in Russia," HSE Working papers WP BRP 168/EC/2017, National Research University Higher School of Economics.
    13. Voskoboynikov, Ilya B., 2017. "Structural change, expanding informality and labour productivity growth in Russia," BOFIT Discussion Papers 18/2017, Bank of Finland, Institute for Economies in Transition.

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    Keywords

    Digital Economy; labor productivity; Philippines; chained volume measure; output in constant prices; reallocation effects;

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