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New indices of labour productivity growth: Baumol’s disease revisited

  • Mizobuchi, Hideyuki
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    We introduce two new indexes of labour productivity growth. Both indexes are intended to capture the shift in the short-run production frontier, which can be attributed to technological progress or growth in capital inputs. The two indexes adopt distinct approaches to measuring the distance between the production frontiers. One is based on the distance function and the other is based on the profit function. In the end, we show that these two theoretical measures coincide with the index number formulae that are computable from the observable prices and quantities of output and input. By applying these formulae to the U.S. industry data of the years 1970–2005, we compare newly proposed index of labour productivity growth with the growth of average labour productivity over periods and across industries. We revisit the hypothesis of Baumol’s disease throughout our observations on the trend of industry labour productivities in the service sector.

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    File URL: http://mpra.ub.uni-muenchen.de/31151/1/MPRA_paper_31151.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31151.

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    Date of creation: 20 Sep 2010
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    Handle: RePEc:pra:mprapa:31151
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    1. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2008. "A Retrospective Look at the U.S. Productivity Growth Resurgence," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 3-24, Winter.
    2. Hulten, Charles R, 1978. "Growth Accounting with Intermediate Inputs," Review of Economic Studies, Wiley Blackwell, vol. 45(3), pages 511-18, October.
    3. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
    4. Channing Arndt & Thomas W. Hertel & Paul V. Preckel, 2003. "Bridging the Gap between Partial and Total Factor Productivity Measures Using Directional Distance Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 928-942.
    5. W.E. Diewert & Catherine J. Morrison, 1985. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," NBER Working Papers 1564, National Bureau of Economic Research, Inc.
    6. Mary O'Mahony & Marcel P. Timmer, 2009. "Output, Input and Productivity Measures at the Industry Level: The EU KLEMS Database," Economic Journal, Royal Economic Society, vol. 119(538), pages F374-F403, 06.
    7. Diewert, W. Erwin & Nakamura, Alice O., 2007. "The Measurement of Productivity for Nations," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 66 Elsevier.
    8. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    9. Kohli, Ulrich, 2004. "Real GDP, real domestic income, and terms-of-trade changes," Journal of International Economics, Elsevier, vol. 62(1), pages 83-106, January.
    10. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, vol. 46(4), pages 883-900, July.
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