There are many different productivity measures. The key distinguishing factor reflects the policy focus, albeit data availability can also play an important role.
Labour productivity, measured as Gross Domestic Product (GDP) per hour worked, is one of the most widely used measures of productivity at country level. Productivity based on hours worked better captures the use of the labour input than productivity based on numbers of persons employed (head counts). Generally, the source for total hours worked is the OECD National Accounts Statistics (database), although other sources are necessarily used where data are lacking. Work continues at the national level to develop the necessary source data but despite the progress and ongoing efforts, for some countries, the measurement of hours worked still suffers from a number of statistical problems that can hinder international comparability.
To take account of the role of the capital input in the production process, the preferred measure is the flow of productive services that can be drawn from the cumulative stock of past investments, such as machinery and equipment. These services, provided by capital goods to the production process, are known as capital services. Capital services provided by each type of capital good are estimated by the rate of change of the productive capital stock, taking into account wear and tear, retirements and other sources of reduction in the productive capacity of fixed capital goods. The overall volume measure of capital services (i.e. capital input) is computed by aggregating the volume change of capital services of all individual assets using asset specific user cost shares as weights. No conceptual distinction is made between user costs of capital and rental prices of capital. In principle, the rental price is that price that could be directly observed if markets existed for all capital services. In practice, however, rental prices have to be imputed for most assets, using the implicit rent that capital goods’ owners “pay” to themselves: the user costs of capital. In other words, the user cost of capital reflects the amount that the owner of a capital good would charge if he rented out the capital good under competitive conditions.
After computing the contributions of labour and capital inputs to output growth, the so-called multifactor productivity can be derived. It represents the efficiency of the combined use of labour and capital in the production process and is measured as the residual growth that cannot be explained by changes in labour and capital inputs. Multifactor productivity is often perceived as a pure measure of technical change, but, in practice, it should be interpreted in a broader sense that partly reflects the way capital and labour inputs are measured. Changes in multifactor productivity reflect also the effects of changes in management practices, brand names, organisational change, general knowledge, network effects, spillovers from one production factor to another, adjustment costs, economies of scale, the effects of imperfect competition and measurement errors.
Gains in productivity also influence the development of unit labour costs, one of the most commonly used indicators to assess a country’s international competitiveness. However, the ability of unit labour costs to inform policies targeting international competitiveness may be limited. This relates to the increasing need to take into account the growing international fragmentation of production, the effects of which on competitiveness may not be captured sufficiently by unit labour costs.
