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The Sources of Productivity Change in the Manufacturing Sectors of the U.S. Economy

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Abstract

The Bureau of Labor Statistics measures productivity change using an index formula that fails a transitivity test. This means the Bureau is likely to report productivity changes even when outputs and inputs in different (non-adjacent) periods are identical. I use alternative formulas that i) satisfy all economically-relevant tests from index theory, and ii) can be decomposed into measures of technical change and efficiency change. I find the main sources of productivity change are scale and mix efficiency change. This supports the view that firms are technically efficient and rationally change their production plans in response to changes in (expected) prices.

Suggested Citation

  • C.J. O'Donnell, 2011. "The Sources of Productivity Change in the Manufacturing Sectors of the U.S. Economy," CEPA Working Papers Series WP072011, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uqcepa:67
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    File URL: https://economics.uq.edu.au/files/5199/WP072011.pdf
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    References listed on IDEAS

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    2. Laurenceson, James & O'Donnell, Christopher, 2014. "New estimates and a decomposition of provincial productivity change in China," China Economic Review, Elsevier, vol. 30(C), pages 86-97.
    3. C.J. O'Donnell & S. Fallah-Fini & K, Triantis, 2011. "Comparing Firm Performance Using Transitive Productivity Index Numbers in a Meta-frontier Framework," CEPA Working Papers Series WP082011, School of Economics, University of Queensland, Australia.

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