Labor Force Structure, Potential Output, and Productivity

Abstract

ECONOMISTS HAVE ATTEMPTED TO ESTIMATE potential gross national product for over a decade now. Potential GNP measures the output the economy would produce if it were operating at some fixed, fairly low level of unemployment, usually defined by an aggregate unemployment rate of about 4 percent. The difference between potential and actual GNP at any point in time is known as the GNP gap. In 1962, Arthur Okun published an analysis that has been the benchmark for official measures of potential GNP ever since, and in the process enunciated what came to be known as Okun's law, which relates the unemployment rate to the percentage GNP gap.' Potential GNP and Okun's law became two of the handiest tools of analysis and presentation for economic stabilization problems. Particularly during the first half of the 1960s, when GNP was running below potential and policy was devoted to closing the gap, no sophisticated analysis of the economy failed to identify the loss in real output that was associated with an economy falling short of full employment. The careful estimation of the full employment surplus in the federal budget has been an important by-product of the estimation of potential * I want to thank Nancy Hwang and Herbert F. Lowrey, Jr., who did all of the computations in this paper. 1. Arthur M. Okun, "Potential GNP: Its Measurement and Significance," in American Statistical Association, Proceedings of the Business and Economic Statistics Section (1962), pp. 98-104.

What Has Happened to Productivity Growth?

“…And, on average, women have less work experience than men. To see the potential consequences of demographic change, I updated work by Perry and constructed an adjusted laborinput measure in which workers in each demographic group are weighted by the relative wage rate of that group (10,12). As the demographic distribution shifted toward workers who earned lower wages, the adjusted labor-input series declined relative to a conventional measure of hours ofwork, reflecting a possible decline in skill and experience.…”

“…1). Basal level his3 expression requires a TATA element located 35 to 55 nucleotides upstream of the transcription initiation site and a poly(dA-dT) sequence located between -115 and -129 (11,12). A separate genetic element, located between -84 and -104 is necessary for positive regulation of his3 in response to amino acid starvation (13).…”

The slowdown in labour productivity growth rates in New Zealand, 1961–1981∗

“…Assuming wage rates are reliable indicators of labour productivity, one can construct a wage-weighted measure of the effective labour force, with weights equalling relative wages of different groups of workers (see Perry [1971]). The Department of Labour produces wage data by the sex but not by the age of employees, so it is possible to compute a sex-weighted measure of the labour force.…”

Errors in the measurement of the output gap and the design of monetary policy

“…This estimate is substantially below current estimates of the NAIRU for that period; for example, the estimate embedded in the FRB/US model would suggest a figure closer to 6 percent. As regards estimates of trend growth, according to Perry (1971), A… potential [output] grows at a rate of between 4.2 and 4.4 percent each year of the 1970s. @ Taking actual output at the end of the 1970s as approximately equal to potential, Perry=s forecast error would have been in the neighborhood of 20 percent.…”