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Measuring Labor Input Dale Jorgenson, Mun Ho, Jon Samuels Harvard University World KLEMS Conference, Harvard University August 19, 2010.

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Presentation on theme: "Measuring Labor Input Dale Jorgenson, Mun Ho, Jon Samuels Harvard University World KLEMS Conference, Harvard University August 19, 2010."— Presentation transcript:

1 Measuring Labor Input Dale Jorgenson, Mun Ho, Jon Samuels Harvard University World KLEMS Conference, Harvard University August 19, 2010

2 Topics - Measurement Issues and Methodology - Data and Implementation - Results - Contribution of labor input to productivity revival - Criticisms of this method

3 Information Technology and the American Growth Resurgence Jorgenson, Ho and Stiroh (2005); Chapter 6 New Data on U.S. Productivity Growth by Industry Jorgenson, Ho and Samuels (2010)

4 Issues in Measuring Labor Input - Number of workers, or Hours worked, are not suitable units of measure for heterogenous labor - Wide range of market wages indicate wide range of productivities - A wage-weighted index have been growing faster than simple sum of hours, productivity residual using hours will overstate the growth of TFP. -Need tractable method of handling this great heterogeneity

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6 Methodology for a tractable measure of labor input -Cross classify workers in each industry by demographic characteristics * In Jorgenson, Gollop & Fraumeni (1987): sex, class, age, education, occupation * Now: sex, class, age, education -Define industry labor input as a Tornqvist index of the demographic components

7 Classification of demographic groups for each industry 2x2x7x6 = 168

8 Index of labor input for industry j, L jt as Tornqvist index of components scae: sex, class, age, education j: industry j or aggregate economy

9 Index L jt, cont. Constant Quality Index Assume labor input is proportional to hours worked: Q scae is the quality of hours of group scae, fixed for all t. Thus input index becomes: Compared to simple hours:

10 Index L jt, cont. Price of industry labor input is simply value/L j after choosing a normalization like: Quality of industry labor input is labor input index divided by hours worked:

11 Decomposing the labor input index Partial indices of labor input. E.g. first-order index by age How much of the quality change is due to changes..in educational attainment?..in the aging of the labor force? … Contribution of age to labor quality

12 Data Need number of workers, hours and compensation to fill matrices of dimension (2sex, 2 class, 7age, 6educ, 70indus). Total of cells. Household survey data (hours/week, weeks/year, wages/year, demographics, industry) Census of Population. - every 10 years - 1% percent sample (1 million workers) Current Population Survey, Annual Supplement (ASEC) - every year, about 100,000 households Establishment survey data Bureau of Economic Analysis tabulations of total employment, total compensation, wages for 72 industries; annual hours for 18 industries

13 Implementation -Begin with Census microdata (1% sample, ~1 mil. workers) to populate EMP, HOURS, COMP matrices for benchmark years -From CPS annual microdata, construct marginal matrices: EMP, HOURS, COMP matrices of lower dimension (e.g. indus x edu, sex x age x edu, …) -Interpolate between benchmark years using these annual marginal matrices -Scale to industry totals in the National Accounts

14 Data Issues -Change from SIC to NAICS classification (CPS and Census 2000 uses NAICS) -Change in education classification in Small sample size in CPS (use fewer industries) -Household data is top-coded for wages -Workers in multiple jobs (multiple industries) -Estimating wages for self employed -No data on fringe (non-wage) benefits by person

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25 December 23, 2000 issue

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27 Labor Contributions to Aggregate Growth

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31 Criticisms of this methodology -Equation of wages with marginal product is not valid with non-competitive markets and discrimination -Small sample sizes for many industries give poor estimates of cell averages -Education is not directly productive and merely a signal -Intensity of work effort is not recognized

32 Summary -Simple sum of hours understate labor contribution, overstate TFP growth -Our labor input index – an aggregate over hours by demographic groups, weighted by wages – is a tractable measure with the use of U.S. Census microdata. -The growth of labor quality was about 0.4% per year, or, ¼ of the labor contribution to GDP growth is due to labor quality and ¾ due to hours growth.


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