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Productivity Measures Productivity … That’s It

Thursday, October 27, 2016 15:19
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Dietrich Vollrath:

Productivity measures productivity … that’s it: Justin Fox at Bloomberg put up a few articles (here, here) recently digging into trends in productivity in the US manufacturing sector. The overarching theme of the two articles is that claims regarding the success of the manufacturing sector in the US (he cites Binyamin Applebaum’s article specifically) are overstated. Fox’s first article is titled “No, U.S. Manufacturing isn’t Really Booming”.

I’m not going to tell you that manufacturing is booming. I’m also not going to tell you that Fox is right about it not booming. I am going to tell you that making claims about the business or financial success of manufacturing based on things like multi-factor productivity (MFP) or labor productivity, as Fox does, is using these measures incorrectly. The “health” or “success” or “boominess” of manufacturing are not things one can infer from productivity statistics.

I’ll pick on Fox’s articles here because they were recent, not because he’s done something especially egregious. They are two of many examples of how measures like MFP and labor productivity get misused to make points about financial or business performance.

The message is that you all need to just let productivity be productivity, you know? …

It measures value-added – not profits, not sales, not cash flow – relative to inputs, and therefore tells us how effectively the economy – not businesses – turns inputs into value-added. Slower MFP growth means slower MFP growth, not anything about competitiveness or the future business success/failure of US manufacturing. Heck, it doesn’t even tell us anything about the past business success or failures of US manufacturing. …

There’s much, much more in the original post.


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