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Accounting for changes in labour composition in the measurement of labour productivity

Labour productivity is measured as the ratio of output (GDP) to labour input. In measuring labour productivity, a labour composition-adjusted series (often referred to as a ‘quality-adjusted’ series) is generally considered to provide the most representative measure of labour input. The rationale for adjusting an input series for changes in labour composition is that workers are not homogenous, and as such, have different skill levels. Not only should an adjustment for this provide a more in-depth measure of labour, it can also provide insight into the effects that changes in labour composition have on productivity. In practice, this is done by cross-classifying workers, using proxies for skill (such as educational attainment and experience), and having the relative skill levels of different groups being estimated via regression analysis, through hourly wages.

This information paper provides background to, and an application of, adjusting for compositional change in the Statistics New Zealand labour productivity series. Two main approaches to making this adjustment are discussed in the paper, with the focus being placed on the preferred regression-based approach in which a number of proxies for skills, such as education and work experience, are regressed on workers’ wages. Variations to the model are presented, although the core results are largely unaffected by these changes.

The primary output of this analysis is an experimental composition-adjusted labour volume series, and a growth accounting decomposition of GDP, with this added level of detail covering the years 1998 to 2007. This period reflects the availability of the preferred datasets. Over the period, education was clearly the main contributor to the rise in labour quality, although the changing distribution of experience, particularly in the latter years, has halted growth in the labour composition series somewhat.

The series is released as experimental largely because it is one for which Statistics NZ is seeking feedback prior to the possibility of publishing the series as an official statistic.

Printable version

The downloadable file is in Adobe Acrobat format. If you do not have the Adobe Acrobat Reader, you may download the reader to view or print the contents of this file.

Tables

The table can be downloaded from the Statistics New Zealand website in Excel format. If you do not have access to Excel, you may use the Excel file viewer to view, print and export the contents of the file.

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