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

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

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)

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

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

Classification of demographic groups for each industry 2x2x7x6 = 168

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

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

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

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

Data Need number of workers, hours and compensation to fill matrices of dimension (2sex, 2 class, 7age, 6educ, 70indus). Total of 11760 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, 1964+ - 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

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

Data Issues -Change from SIC to NAICS classification (CPS 2003+ and Census 2000 uses NAICS) -Change in education classification in 1992 -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

December 23, 2000 issue

Labor Contributions to Aggregate Growth

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

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.