Worker Output Rate Growth Measure

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A Worker Output Rate Growth Measure is an economic growth rate for a worker productivity measure.

References

2015

  • (Wikipedia, 2015) ⇒ http://en.wikipedia.org/wiki/productivity#Growth_accounting_model Retrieved:2015-6-23.
    • Growth accounting model is used in economics to account the contribution of different factors of production to economic growth.

      The idea of growth accounting is to decompose the growth rate of economy's total output into that which is due to increases in the amount of inputs used and that which cannot be accounted for by observable changes in input utilization. The unexplained part of growth is then taken to represent increases in productivity.

      The growth accounting model is normally expressed in the form of the exponential growth function. It can also be expressed in the form of the arithmetical model, which way is used here because it is more descriptive and understandable. The principle of the accounting model is simple. The weighted growth rates of inputs (factors of production) are subtracted from the weighted growth rates of outputs. Because the accounting result is obtained by subtracting it is often called a “residual”. The residual is often defined as the growth rate of output not explained by the share-weighted growth rates of the inputs (Hulten 2009, 6).

       We can use the real process data of the productivity model (above) in order to show the logic of the growth accounting model and identify possible differences in relation to the productivity model. When the production data is the same in the model comparison the differences in the accounting results are only due to accounting models. We get the following growth accounting from the production data.

      The growth accounting procedure proceeds as follows. First is calculated the growth rates for the output and the inputs by dividing the Period 2 numbers with the Period 1 numbers. Then the weights of inputs are computed as input shares of the total input (Period 1). Weighted growth rates (WG) are obtained by weighting growth rates with the weights. The accounting result is obtained by subtracting the weighted growth rates of the inputs from the growth rate of the output. In this case the accounting result is 0.015 which implies a productivity growth by 1.5%.

      We note that the productivity model reports a 1.4% productivity growth from the same production data. The difference (1.4% versus 1.5%) is caused by the different production volume used in the models. In the productivity model the input volume is used as a production volume measure giving the growth rate 1.063. In this case productivity is defined as follows: output volume per one unit of input volume. In the growth accounting model the output volume is used as a production volume measure giving the growth rate 1.078. In this case productivity is defined as follows: input consumption per one unit of output volume. The case can be verified easily with the aid of productivity model using output as a production volume.

      The accounting result of the growth accounting model is expressed as an index number, in this example 1.015, which depicts the average productivity change. As demonstrated above we cannot draw correct conclusions based on average productivity numbers. This is due to the fact that productivity is accounted as an independent variable separated from the entity it belongs to, i.e. real income formation. Hence, if we compare in a practical situation two growth accounting results of the same production process we do not know which one is better in terms of production performance. We have to know separately income effects of productivity change and production volume change or their combined income effect in order to understand which one result is better and how much better.

      This kind of scientific mistake of wrong analysis level has been recognized and described long ago (Vygotsky 1934).Vygotsky cautions against the risk of separating the issue under review from the total environment, the entity of which the issue is an essential part. By studying only this isolated issue we are likely to end up with incorrect conclusions. A practical example illustrates this warning. Let us assume we are studying the properties of water in putting out a fire. If we focus the review on small components of the whole, in this case the elements oxygen and hydrogen, we come to the conclusion that hydrogen is an explosive gas and oxygen is a catalyst in combustion. Therefore, their compound water could be explosive and unsuitable for putting out a fire. This incorrect conclusion arises from the fact that the components have been separated from the entity. (Saari 2011, 10)

      Growth accounting based productivity models were introduced in the 1980s (Loggerenberg van, 1982, Bechler, 1984) to be used in management accounting but they did not gain on as management tools. The reason is clear. The production functions are understood and formulated differently in growth accounting and management accounting. In growth accounting the production function is formulated as a function OUTPUT=F (INPUT), which formulation leads to maximize the average productivity ratio OUTPUT/INPUT. Average productivity has never been accepted in management accounting (in business) as a performance criterion or an objective to be maximized because it would mean the end of the profitable business. Instead the production function is formulated as a function INCOME=F(OUTPUT-INPUT) which is to be maximized.

      The name of the game is to maximize income, not to maximize productivity (Kohli 2012,6).

2015

2014

  • https://www.bls.gov/opub/btn/volume-3/what-can-labor-productivity-tell-us-about-the-us-economy.htm
    • QUOTE: Labor productivity is defined as real output per labor hour, and growth in labor productivity is measured as the change in this ratio over time. Labor productivity growth is what enables workers to produce more goods and services than they otherwise could for a given number of work hours. As an example, suppose workers in a factory can make 20 cars an hour. One month, the company modernizes machinery and the workers take training classes to help improve their performance. Using the new machinery and recently acquired knowledge, the same workers can now make 30 cars an hour — which is a productivity gain of 10 cars per hour, a 50 percent gain. As this example illustrates, there are multiple sources and factors of production that can lead to labor productivity growth. The labor productivity estimate encompasses the overall contribution of all of these factors over a given period.2
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