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Returns to scale effect in labour productivity growth

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  • Hideyuki Mizobuchi

Abstract

Economists acknowledge that technical progress and growth in capital inputs increase labour productivity (LP). However, less focus is given to the realization that changes in labour input alone could also affect LP. Because this effect disappears when the short-run technology exhibits constant returns to scale, we call it the returns to scale effect. We decompose growth in LP into three contributing factors: (1) technical progress, (2) capital input growth and the (3) returns to scale effect. We propose theoretical measures for these three components and show that they coincide with the index number formulae consisting of prices and quantities of inputs and outputs. Subsequently, we apply the results of our decomposition to US industry data for 1987–2009. LP in the services sector is shown to grow much slower than that in the goods sector during the 1987–1995 productivity slowdown period. We conclude that the returns to scale effect can considerably explain the gap in LP growth between the two industry groups. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Hideyuki Mizobuchi, 2014. "Returns to scale effect in labour productivity growth," Journal of Productivity Analysis, Springer, vol. 42(3), pages 293-304, December.
    • Handle: RePEc:kap:jproda:v:42:y:2014:i:3:p:293-304
    DOI: 10.1007/s11123-014-0408-9
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    Cited by:

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    2. Hideyuki Mizobuchi, 2015. "Measuring the comprehensive wage effect of changes in unit labor cost," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 4(1), pages 1-12, December.

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    More about this item

    Keywords

    Labour productivity; Index numbers; Malmquist index; Törnqvist index; Output distance function; Input distance function; C14; D24; O47; O51;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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