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The Importance of Skill Measurement for Growth Accounting

Øivind Nilsen (), Arvid Raknerud (), Marina Rybalka () and Terje Skjerpen ()
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Arvid Raknerud: Statistics Norway

No 4997, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In a growth accounting context one usually constructs a quality adjusted index of labor services by aggregating over predefined groups of workers, using the groups' relative wage bills as weights. In this article we suggest a method based on decomposing individual predicted wages into a skill-related part and a part unrelated to skill, where the former consists of both observed and unobserved components. The predicted wages, associated with individual skill attributes, are sorted and classified into deciles. The median predicted skill-related wage in each decile is used to construct an alternative skill-adjusted index of labor services. We find that Total Factor Productivity (TFP) growth decreases significantly when using the latter method. This means that when using the alternative method one explains more of the growth in labor productivity than what a more traditional labor quality adjustment procedure does.

Keywords: skill measures; wage equation; TFP growth (search for similar items in EconPapers)
JEL-codes: C23 D24 J24 J31 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-06
New Economics Papers: this item is included in nep-eff
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Published in: Review of Income and Wealth, 2011, 57 (2), 293-305 [view]

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Related works:
Journal Article: THE IMPORTANCE OF SKILL MEASUREMENT FOR GROWTH ACCOUNTING (2011)
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