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Real cost reduction and productivity increase in an individual industry: a price-accounting approach in theory and practice

Author

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  • Bisello, Martina
  • Opocher, Arrigo

Abstract

The inter-industry diversity in productivity increase stimulated many studies on the industrial sources of economic growth. Much less efforts have been devoted to the study of the industrial sources of real income increase. Albeit from the standpoint of the economic system these aspects are two sides of the same coin, one can consistently trace back an observable change in real wages (in terms of a certain output) and in capital compensation to its industrial sources only by using data on prices, wages etc. and by fitting them into a consistent ‘price-accounting’ scheme of the industry. The conceptual framework presented in this paper is centered around the notion of ‘Real Cost Reduction’, its breakdown into components, and its outcome in terms of increasing labour and capital compensations. We also provide an illustration of the data sets required, of the qualitative results that can be obtained, and of some practical problems that need to be solved in order to extend the analysis and to compare its quantitative results with those of conventional industrial TFP analysis.

Suggested Citation

  • Bisello, Martina & Opocher, Arrigo, 2013. "Real cost reduction and productivity increase in an individual industry: a price-accounting approach in theory and practice," MPRA Paper 48367, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:48367
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    File URL: https://mpra.ub.uni-muenchen.de/49550/1/MPRA_paper_49550.pdf
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    References listed on IDEAS

    as
    1. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
    2. Opocher, Arrigo, 2009. "A Dual-Solovian Measure of Productivity Increase and its Early Antecedents," MPRA Paper 15541, University Library of Munich, Germany.
    3. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
    4. Steedman, Ian, 1998. "Produced input use per unit of output," Economics Letters, Elsevier, vol. 59(2), pages 195-199, May.
    5. Silberberg, Eugene, 1974. "The Theory of the Firm in "Long-Run" Equilibrium," American Economic Review, American Economic Association, vol. 64(4), pages 734-741, September.
    6. Arrigo Opocher, 2010. "Measuring productivity increase by long-run prices: the early analyses of G.R. Porter and R. Giffen," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 17(5), pages 1271-1291.
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    More about this item

    Keywords

    Productivity increase; real cost reduction; industry; Total Factor Productivity; real wages;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution

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