Empirical Productivity Indices and Indicators

The empirical measurement of productivity change (or difference) by means of indices and indicators starts with the ex post profit/loss accounts of a production unit. The key concepts are profit, leading to indicators, and profitability, leading to indices. The main task for the productivity analyst is to decompose profit or profitability change into price and quantity components, leading to measures of total factor productivity change and total price recovery. This chapter discusses various input–output models and their linkages; the relation between productivity measurement and growth accounting; the relation between total and partial productivity measures; and aggregation issues. The approach advocated here is able to deliver the same results as the neoclassical approach; for example, it appears that for a table in which output growth is decomposed into the contributions of total factor productivity change and input growth, the neoclassical assumptions are neither necessary nor do they contribute anything to our understanding of what productivity precisely is.