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The behaviour of productivity growth rates and composition bias in the labour input

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  • James MacGee
  • Weiqiu Yu

Abstract

The conventionally calculated Solow residual has been used as a measure of exogenous productivity shocks that contribute to the business cycle. However, recently this residual has been shown to be endogenous and has led to the conclusion that the aggregate economy is characterized by increasing returns to scale and imperfect competition. Another hypothesis is that the Solow residual may fail to be exogenous due to measurement errors in labour and capital. Using an efficiency hours series corrected for the composition bias in the labour force and a capital series adjusted for capacity utilization for Canada, it was found that adjusting the Solow residual for cyclical variations in labour and capital inputs over the business cycle re-establishes exogeneity of productivity shocks.

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  • James MacGee & Weiqiu Yu, 2000. "The behaviour of productivity growth rates and composition bias in the labour input," Applied Economics Letters, Taylor & Francis Journals, vol. 7(9), pages 595-598.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:9:p:595-598
    DOI: 10.1080/13504850050059078
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    1. Alain Paquet & Benoit Robidoux, 1997. "Issues on the Measurement of the Solow Residual and the Testing of its Exogeneity: a Tale of Two Countries," Cahiers de recherche CREFE / CREFE Working Papers 51, CREFE, Université du Québec à Montréal.
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    Cited by:

    1. Jean Farès & Terence Yuen, 2003. "Technological Change and the Education Premium in Canada: Sectoral Evidence," Staff Working Papers 03-18, Bank of Canada.

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