Recent developments in productivity measurement

1. Recent developments in productivity measurement Paul Schreyer OECD StatisticsDirectorate Canberra, 20 November 2012

2. Introduction • Productivity = output/input • Issues: • Identifying, measuring and aggregating inputs and outputs • Level of measurement (economy, industry, firm) • Academiccommunitydealingwithproductivitymeasurement and analysis • World KLEMS network • NSOs: no clear trend

3. This presentation Bringing nature into the productivitypicture The firmlevel: productivitymeasurementwith micro-data No claim for comprehensivepresentation of recentdevelopments

4. Bringing nature into the productivitypicture

5. Bringing nature into the picture – input side (1) • Typical inputs: labour, produced capital, intermediate inputs • Often neglected: non-producednatural assets: • Mineral resources • Soil/land • Timber • Aquatic resources • Water

6. Bringing nature into the picture – input side (2) • Why important? • Assessing contribution of naturalassets to economicgrowth • Measuringproductivitycorrectly • Policy implication: isgrowthdriven by MFP or by naturalassets • Note: withoutmeasurement, direction of biasunknown

7. Volume index of subsoilassetremovals, Australia, 1989=100 Source: OECD calculations, based on ABS data.

8. No unambiguous direction Effect of includingnaturalresource input on measuredproductivitygrowth: • Traditional MFP > adjusted MFP if : • naturalresource input growth > traditional input growth • i.e., total input growth has been understated • i.e., traditional MFP growth has been overstated • And vice versa

9. Norway – Difference between adjusted and traditional MFP growth Traditional MFP over-stated Traditional MFP under-stated Source: OECD, work in progroess.

10. Challenge: quality of naturalresource input Capture changingmarginal extraction costs (whichmaybeincreasing) Capturingchangingquality in the resourceitselfegdecliningsoilquality  failing to do sowilloverstatemeasured contribution of naturalresource to output and understate MFP

11. Effects on productivitymeasures: Australia’sminingindustry Study by Productivity Commission (Topp, Soames, Parham, Bloch 2008): Similar in spirit except that mining output is adjusted for declining yields Underlying rate of productivity growth is around 2.5 per cent p. a., compared with stagnant standard MFP (1974 to 2007) Natural resource input has grownlessquicklythanother inputs, so MFP wasunderstated by traditionalmeasure

12. Bringing nature into the picture – output side (1) • Production processesoftenaccompanied by undesirable outputs, e.g., emissions • Fromproducer and MFP measurement perspective: • Relevant in presence of environmentalpolicies: • explicit price (e.g., tax) or • implicitprice (marginal abatementcosts due to regulation) • Are traditional MFP measures over-or understated?

13. Again, no unambiguouseffect on measuredproductivity (1) Example: • Given inputs (labour, capital,…) • Risingtraditional output • Constant emissions • adjusted MFP > traditional MFP • Productivitygrowthwasrequired to keepemissionsatbay

14. Again, no unambiguouseffect on measuredproductivity (2) But overstatement of traditional MFP if emissionsgrowquickerthantraditional output For manypollutants (NOx, Sox, CO2,…) relative decoupling in many OECD countries  Understatement of traditional MFP

15. Private and social valuation • Producer perspective = privatevaluation • marginal abatementcost for producer • Welfare perspective = social valuation • marginal cost to society = producercosts + consumer costs + externalities • Both perspectives meaningful but should not be mixed up • If productivitymeasurementisbased on producertheory, producer perspective iscalled for

16. OECD work in this area… • As part of green growthindicatorwork • MFP adjustmentwithnaturalasset inputs • MFP adjustmentwithundesirable outputs • Index of naturalresources

17. Important international development: SEEA • System of IntegratedEnvironmental and EconomicAccounts • Adoptedat UN level in 2012 • Consistent accounting for environment-economy interaction • Basis for indicatorwork • Unifyingelement: balance sheets • Stocks, additions, removals • Physical and monetaryvaluation • Major taskahead: implementation

18. The firmlevel: productivitymeasurementwith micro-data

19. Firm-level measurement • Drawbacks • No prices, capital proxy, employees, incomplete sector coverage, short time-spans • Avantages • Entry, exit, reallocation • Within-firm cycle/growth • Understanding/measuring both firm-level levers and environmental factors driving growth

20. Stylisedfactsfrom micro estimates (1) • Hugeproductivity dispersion • Evenwithinverynarrowlydefined industries • Firm size plays an important role • But how accurately are outputs measured?

21. UK: Labour productivity by firm size Source: J. Saleheen, Bank of England 2012

22. Stylisedfactsfrom micro estimates (2) Reallocation or resources to high-productivityproducers important Competition—consumers can easily switch suppliers Labor and capital market flexibility Summary measure of reallocation: correlation between productivity and market share

23. Correlation between Productivity and Market Share Source: Ch. SyversonNovember 2012

24. Firm-levelmeasurementrequiresdealingwith… • Large volumes of data • Confidentiality issues • Small countries • Narrowlydefined industries • No international standards – reducedcomparability • NSOs have taken up issue

25. Conclusions

26. Conclusions (1) Nature of productivityimplies cumulation of measurement challenges Quality of source data (national accounts, firm-level data) key Integratingproductivitymeasurementinto official statistics important but not yetwidespread

27. Conclusions (2) • Tricky output measurement in particular in: • Financial services • Health, education, general administration • Undesirable outputs • Tricky input measurement: • Hoursworked by industry and by skills • R&D capital (new in national accounts) • Natural capital • Intangibles

28. Thankyou!