Productivity Measurement in Sectors with Hard-to-Measure Output

The key challenge in measuring productivity is its inherently residual nature: productivity is output growth—including changes in output quality—over and above growth in intermediate and capital service inputs—including changes in input quality—while adjusting change in inputs for non-unitary returns to scale. Thus, using the national accounting term volume for the combined measure of change in quantity and quality, a key objective in compiling estimates of growth in output and intermediate consumption is to distinguish volume change from price change within the change in economic value aggregates, key among which is gross domestic product (GDP). After setting up a Törnqvist measurement framework including quality change for the capacity utilization function and its dual value added (GDP) function, the chapter briefly discusses issues in the hard-to-measure sectors identified by the Organisation for Economic Co-operation and Development, with an emphasis on financial services.