Measured Productivity and Actual Productivity
By Arnold Kling
Is measured aggregate productivity accurate? Probably not, but I can think of important reasons that it would be understated as well as overstated.
1. For goods where there is a long history of measurement, productivity growth tends to be higher than aggregate productivity growth. Nordhaus’ classic study of light, cited a couple of times in FP2P is one example. In general, if you measure the amount of hours one must work at the median wage to obtain goods in the category of food, clothing, and durable goods, it has gone way down.
2. However, for services, productivity growth is notoriously difficult to measure. With so much of our economy devoted to health care, education, finance, and government services, it is hard to gauge productivity growth. It is doubtful that the measured productivity growth in financial services earlier this decade is indicative of higher quality output.
3. Speaking of health care, if one looks at longevity and health overall, the steady improvement must reflect some tremendous increased productivity. Again, in FP2P, we cite studies showing that gains in health among Americans are as significant as the gains in GDP per capita, and those gains are not counted in productivity measures. The improvements in longevity and health may or may not be due to health care per se. However, if they are due to better nutrition, or work that is safer and less physically stressful, in some deep sense the health improvements come from productivity growth.
4. The greater variety of goods and services contributes a great deal to well-being, but greater variety does not enter measured productivity.
5. Along the same lines, I do not how to measure the added value of new computing and communication technology. The ability to post this entry using free wireless away from home does not enter measured productivity.
So, even though one can raise objections to some of what is counted as a productivity increase in the standard data, I think that one can also raise issues that go in the opposite direction. Overall, I am inclined to believe that productivity growth has been high over the past one hundred years and that in recent years it has accelerated.