Victor R. Fuchs

English

Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National
Bureau of Economic Research
Volume Title: Productivity Trends in the Goods and Service Sectors, 1929-61:
A Preliminary Survey
Volume Author/Editor: Victor R. Fuchs
Volume Publisher: UMI
Volume ISBN: 0-87014-403-0
Volume URL: http://www.nber.org/books/fuch64-1
Publication Date: 1964
Chapter Title: Input and Output Measures
Chapter Author: Victor R. Fuchs
Chapter URL: http://www.nber.org/chapters/c1827
Chapter pages in book: (p. 6 - 10)2
input and Output Measures
What are some of the factors. that might account for differences in
output per man? Previous studies of productivity and growth have
called attention to the following: hours worked pet man, skill or quality
of labor, capital and other nonhuman resources per worker, technologi-
cal change or advance of knowledge, and economies of scale. We will
examine some of these variables in this paper; others must be deferred
to a later date. A discussion of the principal concepts and sources used
in the analysis follows.
Output
Output is measured by the U. S. Department of Commerce estimates of
gross product originating in each industry in 1954 dollars.1 This is
conceptually similar to the gross national product, but the method of
obtaining constant-dollar estimates differs from the total and from indus-
try to industry. In principle, the effect of price change is eliminated by
the method known as deflation." That is, the output of an
industry and its purchases are each deflated separately and the differ-
ence between the two deflated figures is taken as the gross product in
constant dollars. With modifications, this method was used by the
Commerce Department for farms, construction, manufacturing, the
major portions of finance and insurance, electrical utilities, and rail-
roads. In other industries, real product was estimated by extrapolating
the base-year product by an index of the quantity of total output. The
iPresented for the first time in Martin L. Marimont, 'tGNP by Major Industries,"
SurveyofCurrent Business, October 1982, and revised in Survey of Current Business,
September 1963.
6input and Output Measures
estimates for the period 1929-47 are based on Kendricks indexes of
real output.2
Gross product is not a completely satisfactory measure of real out-
put by industry, but it is probably the best one available for industry
productivity analysis. One advantage is that. the industry totals do equal
the total GNP, and it is therefore possible to calculate industry produc-
tivity measures relative to the total economy. Probably the most impor-
tant defect of the gross product measures is that output in some indus-
tries is estimated from employment data. This problem is most serious
in government and some of the other service industries. The possible
effect of biases in the output measures on trends in productivity is
discussed in Section 5. -
Itshouldbe noted that much of the analysis presented in this paper
is concerned with changes in various inputs and will be
equally relevant if some different and presumably superior output
measures become available.
Employment
The Department of Commerce series "Number of Persons Engaged in
Production" is used to measure changes in employment. This series
includes self-employed as well as employees reduced to full-time equiva.
lents, and is probably reasonably accurate. The exclusion of unpaid
family workers may introduce some measurement errors in agriculture
and trade, while the method of converting part-time employment into
full-time equivalents may introduce some bias in industries such as
services, where part-time employment is
2JohnW.Kendrick, Productivity Trends in the United States, Princeton Univer-
sity Press for National Bureau of Economic Research, 1961. It may be noted that
for the years after 1947, where comparison between Kendrick's output indexes and
the Office of Business Economics estimates of real gross product are possible, the
two methods yield almost identical results for the sector aggregates.
SIn converting part-time into full-time equivalents, the Office of
Business Economics divides the payroll of part-time employees by the average earn-
ings of full-time employees. If, as seems likely, part-time employees earn less per
hour than full-time employees, the OBE procedure will understate the true full-
time equivalent employment and will overstate the average annual earnings obtained
by dividing total payroll by full-time equivalent employment so estimated.
7Productivity Trends in Goods and Service Sectors
Man-Hours
Total man-hours for each industry are obtained by multiplying employ-
ment by number of hours worked per year per full-time employee. The
latter is based on John Kendrick's estimates of average hours worked per
week (with interpolations and extrapolations )
TotalLabor Input
If one is interested in measuring total labor input, estimates based on
man-hours data present a number of difficulties. First, there are possible
defects in the employment series. Second, there is the problem of obtain-
ing accurate information concerning the average number of hours
actually worked each year by full-time employees. Third, there is the
question whether decreases in hours per week, when hours are long,
may not result in an offsetting increase in output per Finally,
man-hours data tell us nothing about the quality of labor attributable to
differences in intelligence, strength, training, and so on. It would be
useful to have a measure of labor input which took account of all these
factors.
Provided we accept certain assumptions to be discussed, we may
be able to approach such a measure through the datalabor com-
pensation. Labor compensation refers to the total' payments made to
labor, including wages and salaries and supplements to wages and
salaries, and the labor income of the self-employed. If we assume that
the price of labor (adjusted for quality, effort, and so forth) changes
at the same rate in all branches of the economy, then the change in
total labor compensation in a particular industry relative to the change
in the economy as a whole is equal to the change in labor input in that
industry relative to the change in labor input for the economy as a
whole.6
4Kendrick, Productivity Trends, p. 310.
5Seediscussion of this point by Edward F. 'Denison, in The Sources of
Economic Growth in the United States and the Alternatives Before Us, Supple-
mentary Paper No. 13, New York, Committee for Economic Development, January
1962, P. 40.
°See equation (1), Appendix.
8 'I'Input and Output Measures
Note that this formulation does not require that a dollar's worth
of compensation buy the same amount of labor input in all industries
in either the initial or the terminal year. There may be variations based
on nonpecuniary factors, monopoly or monopsony power, and so on.
The relative change in labor compensation will still be equal to the
relative change in labor input provided these other factors do not
change from industry to industry over time.
Unfortunately, we do not have data on total labor compensation by
industry, but the Office of Business Economics does provide estimates
of the compensation of employees (full-time equivalents )Industry
totals have been calculated by assuming that the compensation of the
self-employed in each major industry group is equal to the compensa-
tion per employee in that group. This procedure may not yield com-
pletely accurate estimates of levels, but it still may provide an accurate
estimate of changes in labor compensation over time for the following
reasons. First, in those industries where the self-employed are a small
percentage of the persons engaged, there is no problem. Second, in
those industries where the true average compensation of the self-em-
ployed is close to the compensation per employee, there is no problem
either. Finally, where the proportion of self-employed and the ratio of
the true compensation per self-employed to compensation per employee
do not change, the estimate will be accurate, regardless of what the
true ratio is.
Total Factor In put
The foregoing suggests that relative changes in labor compensation may
be used to estimate relative changes in labor input. Similarly, relative
changes in total compensation (measured approximately by gross
product in current dollars) may be used to estimate relative changes
in total factor input. In this case we assume that the price of a composite
unit of factor input (land, labor, and capital) has changed at the same
7The Office of Business Economics data on compensation per man by industry
were compared with industry wage and salary data collected by the Bureau of the
Census in its Current Population Survey for 1948 through 1960, as reported in
Herman P. Miller, Trends in the income of Families and Persons in the United
States: 1947-1960, Bureau of the Census Technical Paper No. 8, Washington,
Covernment Printing Office, 1963, Table 17. The sector differentials were almost
identical.
9Trends in Goods and Service Sect
rate in all branches of the economy.8 This assumption is less likely to be
true than the same assumption for a single factor because relative
factor prices have changed and industry factor proportions differ. Some
independent verification is possible through direct estimation of capital
input, to be discussed later.
8See equation (2), Appendix. See Denison, Sources of Economic Growth, pp.
218, 219, for a discussion of this method.

Productivity Trends in the Goods and Service Sectors, 1929-61: A Preliminary Survey

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