Comparing Labour Productivity Growth in the OECD Area: The Role of Measurement

Abstract

This paper examines how measurement problems affect international comparisons of labour productivity. It suggests that these measurement problems do not significantly affect the assessment of aggregate productivity patterns in the OECD area. However, these problems do influence the more detailed assessment of productivity growth, notably the role of specific sectors and demand components in aggregate performance. The paper shows that there are only a few significant problems regarding the comparability of nominal GDP across OECD countries, the most important being the treatment of software investment. In most cases, efforts are underway to reduce the size of these differences. Measurement differences for real GDP are also important, although several of these factors have impacts that work in different directions. Moreover, several of these problems primarily affect the distribution of total GDP across different expenditure categories and across different activities, not necessarily GDP growth. The measurement of labour input is the third major factor affecting labour productivity estimates. A key challenge in deriving comparisons of productivity growth across OECD countries lies in ensuring that estimates of labour input are consistent with the GDP information and that the components of labour input, hours worked and employment are internally consistent. The paper shows that a careful assessment of available data and their underlying concepts is often equally important for developing accurate estimates of labour productivity growth as cross-country differences in the underlying basic data. To address this problem, OECD is currently developing a reference database on productivity at the aggregate level.