When do we start to rework the national accounting procedures ?

Productivity growth once was a sign of technical progress. It s easy to measure how many hours are needed to produce a car. With the rise of services, problems appear. But what is the productivity of schools, hospitals, lawyers ? With the rise of imports in industrial products other problems appear. Some value added disappears in the home country, but if the product is bought cheaper from elsewhere, and if it is an intermediate product, the buyers of that product enjoy a higher value added, hence higher productivity. So if we replace 100 manufacturing jobs by 100 service jobs, the GDP numbers go false twice. 1 the value added of the services is estimated to be the wages paid, since there is no measuring of the output. 2 the value added of those who buy the foreign intermediate product is boosted because the price paid for it is lower than before. So may be there is absolutely no real productivity growth but only a better allocation at market prices. what if they change? The problem of services is a problem of "micro" but it affects the meaning of the macro. If the economy was 100% services what would an increase in productivity mean ? Indeed buying overseas is cheaper. But that does not mean it improve technical efficacity. Hence a higher productivity does not mark any technical progress, it only shows that efficiency has been improved by exploiting the inequal level of prices worldwide. So when higher productivity meant better production techniques it may now mean higher use of foreign cheap labor. This is a problem because where as technical progress is quite stable, the price of labor is related to the currency relative price. So if China reevalues 50% for instance, how many productivity gains disappear ? Of course education could also be seen as an investment, that only adds to the need of reworking national accounting procedures.

Asked By: Hermes - 11/14/2006
Best Answer - Chosen by Asker
You need to choose a perspective (macro or micro) and stick to it. What you are doing right now is needlessly confusing yourself by randomly switching between the micro view of productivity (the number of hours it takes te build a certain product) and the macro view (value added divided by the size of labor force... More
Answered By: NC - 11/14/2006
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