Labour Productivity: Output, Employment, and Working Hours, Exercises of Statistics

Download Labour Productivity: Output, Employment, and Working Hours and more Exercises Statistics in PDF only on Docsity! KILM 16. Labour productivity Introduction This chapter presents information on labour productivity for the aggregate economy with labour productivity defined as output per unit of labour input (persons engaged or hours worked). Labour productivity measures the efficiency of a country with which inputs are used in an economy to produce goods and services and it offers a measure of economic growth, competitiveness, and living standards within a country. Use of the indicator Economic growth in a country can be ascribed either to increased employment or to more effective work by those who are employed. The latter effect can be described through statistics on labour productivity. Labour productivity therefore is a key measure of economic performance. The understanding of the driving forces behind it, in particular the accumulation of machinery and equipment, improvements in organization as well as physical and institutional infrastructures, improved health and skills of workers (“human capital”) and the generation of new technology, is important for formulating policies to support economic growth. Such policies may focus on regulations on industries and trade, institutional innovations, government investment programmes in infrastructure as well as human capital, technology or any combination of these. Labour productivity estimates can support the formulation of labour market policies and monitor their effects. For example, high labour productivity is often associated with high levels or particular types of human capital, indicating priorities for specific education and training policies. Likewise, trends in productivity estimates can be used to understand the effects of wage settlements on rates of inflation or to ensure that such settlements will compensate workers for (part of) realized productivity improvements. Finally, productivity measures can contribute to the understanding of how labour market performance affects living standards. When the intensity of labour utilization  the average number of annual working hours per head of the population  is low, the creation of employment opportunities is an important means of raising per capita income in addition to productivity growth. 1 In Europe, for example, with productivity levels relatively close to the United States but lower per capita income levels, living standards can be improved by increasing labour utilization. This can be achieved by encouraging a higher labour force participation rate or by encouraging workers to work more hours, e.g. by creating more decent and productive employment opportunities for economic activity. In contrast, when labour intensity is already high, for example in East Asia, increasing productivity is essential to improving living standards. In any case, increasing labour force participation is at best a transitional source of growth depending on the rate of population growth and the age structure of the population. In the long run, it 1 It is clear that living standards do not equal per capita income, but the latter can still be viewed as a reasonably good proxy of the former, even though the link is not automatic. For example, the United Nations Development Programme (UNDP) Human Development Report 2014 reveals that, out of 186 economies with information on both the human development index (HDI) and GNI per capita in 2012, 107 rank higher in HDI than in GDP, two rank the same and 77 rank higher in GDP than in HDI. Labour productivity KILM 16 is the productivity of labour which determines the rise in per capita income. Definitions and sources Productivity represents the amount of output per unit of input. In KILM 16, output is measured as gross domestic product (GDP) for the aggregate economy expressed at purchasing power parities (PPP) to account for price differences in countries; as well as at market exchange rates for table 16a, which reflect the market value of the output produced. Labour productivity growth may be due to either increased efficiency in the use of labour, without more of other inputs, or because each worker works with more of the other inputs, such as physical capital, human capital or intermediate inputs. More sophisticated measures, such as “total factor productivity”, which is the output per combined unit of all inputs, are not included in KILM 16. 2 Estimated labour productivity may also show an increase if the mix of activities in the economy or in an industry has shifted from activities with low levels of productivity to activities with higher levels, even if none of the activities have become more productive by themselves. For a constant “mix” of activities, the best measure of labour input to be used in the productivity equation would be “total number of annual hours actually worked by all persons employed”. In many cases, however, this labour input measure is difficult to obtain or to estimate reliably. For this reason, two series for labour productivity are shown in table 16b, GDP per person engaged and GDP per hour 2 For recent estimates of total factor productivity growth, please refer to The Conference Board Total Economy Database™, May 2015, http://www. conference-board.org/data/economydatabase/”. Estimates at the industry level can be obtained from the EU KLEMS Growth and Productivity Accounts (http://www.euklems.net). worked; and one series in table 16a, GDP per worker. To compare labour productivity levels across economies, it is necessary to convert output to US dollars on the basis of purchasing power parity (PPP). A PPP represents the amount of a country’s currency that is required to purchase a standard set of goods and services worth one US dollar. Through the use of PPPs one takes account of differences in relative prices between countries. Had official currency exchange rates been used instead, the implicit assumption would be that there are no differences in relative prices across countries. The labour productivity estimates in table 16b are expressed in terms of 1990 US dollars converted at PPPs (as the 1990 PPP made it possible to compare the largest set of countries – see details below) and in table 16a in terms of 2005 international dollars converted at PPPs as well as constant 2005 US dollars. The labour productivity estimates in table 16b are derived from the Total Economy Database of The Conference Board and are available for 123 economies. This database also includes measures of labour compensation to obtain unit labour cost. A full documentation of sources and methods by country and underlying documentation on the use of PPPs, etc. can be downloaded from the database website. 3 In table 16b, GDP estimates for OECD countries after 1990, , are mostly obtained from the OECD National Accounts, Volumes I and II (annual issues) and the Eurostat New Cronos database. The series up to 1990 are mostly derived from Maddison (1995). 4 3 The Total Economy Database is maintained at: http://www.conference-board.org/data/productivity.cfm. The database was previously housed at the Groningen Growth and Development Centre of the University of Groningen, Netherlands. This research centre still undertakes research on comparative analysis of levels of economic performance and differences in growth rates. See http://www.ggdc.net/index.htm for the latest publications. 4 A. Maddison, database on “Historical statistics”, available at Maddison’s homepage: http://www.ggdc.net/maddison/.