The Sources of Productivity Change in the Manufacturing Sectors of the U.S. Economy

Christopher O'Donnell

No WP072011, CEPA Working Papers Series from University of Queensland, School of Economics

Abstract: The Bureau of Labor Statistics measures productivity change using an index formula that fails a transitivity test. This means the Bureau is likely to report productivity changes even when outputs and inputs in different (non-adjacent) periods are identical. I use alternative formulas that i) satisfy all economically-relevant tests from index theory, and ii) can be decomposed into measures of technical change and efficiency change. I find the main sources of productivity change are scale and mix efficiency change. This supports the view that firms are technically efficient and rationally change their production plans in response to changes in (expected) prices.

Date: 2011-09
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