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Many statistical agencies use the sum of hours worked when measuring labour services. This implies that all workers provide work of equal quality. Various indices for adjusting for labour quality have been employed in a large body of literature. However, this literature has not yet addressed the issue of how to quality‐adjust the impact of workers entering and exiting the labour market. We outline a theoretical framework for dealing with quality adjustment of labour services caused by workers entering and exiting employment. To illustrate the theoretical framework, we use the case of Norway in the period 1997–2013. The impact on labour services due to our quality adjustment of net entry is found to be cyclical. While the adjustment for the quality of net entry amounts to about −0.3 percentage points annually during expansions, it is offset by about the same magnitude during contractions.

Several reasons have been put forward to explain the high dispersion of productivity across establishments: quality of management, different input usage and market distortions, to name but a few. Although it is acknowledged that a sizable portion of productivity dispersion may also be due to measurement error, little research has been devoted to identifying how much they contribute. We outline a novel procedure for identifying the role of measurement error in explaining the empirical dispersion of productivity across establishments. The starting point of our framework is the errors‐in‐variable model consisting of a measurement equation and a structural equation for latent productivity. We estimate the variance of the measurement error and subsequently estimate the variance of the latent productivity variable, which is not contaminated by measurement error. Using Norwegian data on the manufacture of food products, we find that about one percent of the measured dispersion stems from measurement error.

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