NCPA - National Center for Policy Analysis

Measuring Productivity

June 21, 2001

Growth in labor productivity is enormously important because it melts away problems of inflation, budget deficits, unemployment and stagnant income, economists point out. So measuring it correctly is vital.

The productivity rate is economic output divided by the number of hours it takes to product it. Simple as it sounds, economists know that accurately measuring those two factors is easier said than done. The qualify of goods changes and new goods are introduced constantly. As for the number of hours people work, that becomes more difficult to determine as employees increasingly perform work after hours on cell phones, beepers and home computers.

Some economists think both factors have been understated in recent years.

  • Official statistics show that productivity grew at an annual rate of 2.7 percent from 1947 to 1975, then mysteriously slowed to 1.4 percent from 1975 to 1995.
  • After 1995, it rebounded to 2.8 percent -- then registered a 1.2 percent decline last quarter.
  • After questions were raised about the accuracy of the numbers, researchers from the Bureau of Labor Statistics and the Bureau of Economic Affairs compared the official hours statistics with one they constructed from surveys of employees -- and concluded that the official productivity estimates "are biased trivially, if at all, by the absence of data on the actual hours of nonproduction and supervisory workers."

Thus, they found productivity grew 2.5 percent from 1995 to 1999 by official estimates, while the researchers' estimate was 2.6 percent -- vindicating the accuracy of the official numbers.

Source: Alan B. Krueger (Princeton University), "Economic Scene: Gauging Work Hours Is Not a Problem in Measuring Productivity Growth," New York Times, June 21, 2001.


Browse more articles on Economic Issues