The Challenge of Total Factor Productivity Measurement

Abstract

In order to measure industry total factor productivity accurately, we require reliable information not only on the outputs produced and the labour input utilized by the industry but we also require accurate information on eight additional classes of input used by the industry. One of these additional classes of input is intermediate input; i.e., inputs that are utilized by the industry but which are produced by other industries. Information on the real and nominal purchases of intermediate inputs by industry comes from the system of input-output tables published by Statistics Canada. In section 4, we explain why the estimates of real intermediate input utilization by industry that one can obtain from the real input-output tables of any country are likely to be inaccurate. In section 5, we go on to make the case that national productivity estimates are likely to be more accurate than subnational industry estimates. Section 6 concludes on an optimistic note. The total factor productivity of a firm, industry or group of industries is defined as the real output produced by the firm or industry over a period of time divided by the real input used by the same set of production units over the same time period. However, it turns out to be difficult to provide a meaningful definition of real output or real input due