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Adjusting for Changes in Labour Composition in Statistics New Zealand’s Productivity Series

Authors

Thomas McNaughton

Abstract

In the measurement of labour productivity, a 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 labour input for changes in labour composition is that workers are not homogenous, and as such, have different skill levels. Not only should this adjustment provide a more complete measure of labour input, but it can also provide insight into the effects that changes in labour composition have on productivity. In practice, the adjustment is undertaken by cross-classifying labour using proxies for skill, such as educational attainment and experience, with the relative skill levels of different groups being estimated via regression analysis. This paper evaluates the various theories behind compositional adjustment and presents the results of applying such an adjustment to the Statistics New Zealand labour productivity series, under various conditions. The ultimate contribution of the paper is a composition-adjusted labour productivity series.

pdf icon. Adjusting for Changes in Labour Composition in Statistics New Zealand’s Productivity Series (PDF, 136kb)

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