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June 2005, Vol. 128, No. 6
Preliminary estimates of multifactor productivity growth
Data for 2003 were corrected online in this article's PDF file on July 8, 2005.
Peter B. Meyer and Michael J. Harper
Labor productivity growth supports long-term improvements in standards of living. Productivity can increase because of investments in equipment and structures, a more educated and experienced workforce, and improvements in technology. The BLS multifactor productivity (MFP) measures are designed to isolate the effects on labor productivity of capital growth and of the changing composition of the labor force. These input effects are reported separately, and multifactor productivity growth represents the unexplained portion of labor productivity growth.
The multifactor productivity measures are designed along the lines of Solow’s method of growth accounting.1 Substantively, multifactor productivity change results from joint influences on economic output of technological change; efficiency improvements (for example, because of better transportation or communications); returns to scale; reallocation of resources (such as shifts of labor among industries); and other factors, after allowing for the effects of capital and labor growth. An example of a source of efficiency improvement is the construction of the interstate highway system. It has been argued that this raised multifactor productivity and, analogously, that the Internet and the World Wide Web have done so.
This excerpt is from an article published in the June 2005 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 Robert Solow, "Technical Change and the Aggregate Production Function," The Review of Economics and Statistics, August 1957, pp. 312–20.
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