Publication Date: November 2000
The present study is a contribution to the theory of the measurement of productivity growth. First, it examines the welfare-theoretic basis for measuring productivity growth and shows that the ideal welfare-theoretic measure is a chain index of productivity growth rates of diﬀerent sectors which uses current output weights. Second, it lays out a technique for decomposing productivity growth which separates aggregate productivity growth into three factors — the pure productivity eﬀect, the eﬀect of changing shares, and the eﬀect of diﬀerent productivity levels. Finally, it shows how to apply the theoretically correct measure of productivity growth and indicates which of the three diﬀerent components should be included in a welfare-oriented measure of productivity growth. The study concludes that none of the measures generally used to measure productivity growth is consistent with the theoretically correct measure.
Productivity, index numbers
JEL Classification Codes: E3, O3, C82, D24