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The Importance of Skill Measurement for Growth Accounting

Author

Listed:
  • Nilsen, Øivind Anti

    (Norwegian School of Economics)

  • Raknerud, Arvid

    (Statistics Norway)

  • Rybalka, Marina

    (Statistics Norway)

  • Skjerpen, Terje

    (Statistics Norway)

Abstract
In a growth accounting context one usually constructs a quality adjusted index of labor services by aggregating over predefined groups of workers, using the groups' relative wage bills as weights. In this article we suggest a method based on decomposing individual predicted wages into a skill-related part and a part unrelated to skill, where the former consists of both observed and unobserved components. The predicted wages, associated with individual skill attributes, are sorted and classified into deciles. The median predicted skill-related wage in each decile is used to construct an alternative skill-adjusted index of labor services. We find that Total Factor Productivity (TFP) growth decreases significantly when using the latter method. This means that when using the alternative method one explains more of the growth in labor productivity than what a more traditional labor quality adjustment procedure does.

Suggested Citation

  • Nilsen, Øivind Anti & Raknerud, Arvid & Rybalka, Marina & Skjerpen, Terje, 2010. "The Importance of Skill Measurement for Growth Accounting," IZA Discussion Papers 4997, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4997
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    References listed on IDEAS

    as
    1. Arvid Raknerud & Dag Rønningen & Terje Skjerpen, 2007. "A Method for Improved Capital Measurement by Combining Accounts and Firm Investment Data. A revised version," Discussion Papers 365, Statistics Norway, Research Department.
    2. Mogens Fosgerau & Svend E. Hougaard Jensen & Anders Sørensen, 2002. "Measuring Educational Heterogeneity And Labor Quality: A Note," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(2), pages 261-269, June.
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    7. Lucia Foster & John C. Haltiwanger & C. J. Krizan, 2001. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Chapters, in: New Developments in Productivity Analysis, pages 303-372, National Bureau of Economic Research, Inc.
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    10. Nadim Ahmad & François Lequiller & Pascal Marianna & Dirk Pilat & Paul Schreyer & Anita Wölfl, 2003. "Comparing Labour Productivity Growth in the OECD Area: The Role of Measurement," OECD Science, Technology and Industry Working Papers 2003/14, OECD Publishing.
    11. Aitor Lacuesta & Sergio Puente & Pilar Cuadrado, 2009. "Omitted variables in the measure of a labour quality index: the case of Spain," Working Papers 0835, Banco de España.
    12. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2009. "Lumpy investments, factor adjustments, and labour productivity," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 104-127, January.
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    Cited by:

    1. Thomas von Brasch & Ådne Cappelen & Diana-Cristina Iancu, 2015. "Understanding the productivity slowdown. The importance of entry and exit of workers," Discussion Papers 818, Statistics Norway, Research Department.
    2. Paul E. Brockway & Harry Saunders & Matthew K. Heun & Timothy J. Foxon & Julia K. Steinberger & John R. Barrett & Steve Sorrell, 2017. "Energy Rebound as a Potential Threat to a Low-Carbon Future: Findings from a New Exergy-Based National-Level Rebound Approach," Energies, MDPI, vol. 10(1), pages 1-24, January.
    3. Golombek, Rolf & Raknerud, Arvid, 2018. "Exit dynamics of start-up firms: Structural estimation using indirect inference," Journal of Econometrics, Elsevier, vol. 205(1), pages 204-225.
    4. Thomas von Brasch & Ådne Cappelen & Diana‐Cristina Iancu, 2018. "Measuring Labour Services: Quality‐Adjusting the Entry and Exit of Workers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(2), pages 597-623, April.
    5. Mateusz Pipien & Sylwia Roszkowska, 2015. "Returns to skills in Europe – same or different? The empirical importance of the systems of regressions approach," NBP Working Papers 226, Narodowy Bank Polski.
    6. Paul E. Brockway & Matthew K. Heun & João Santos & John R. Barrett, 2017. "Energy-Extended CES Aggregate Production: Current Aspects of Their Specification and Econometric Estimation," Energies, MDPI, vol. 10(2), pages 1-23, February.

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    More about this item

    Keywords

    wage equation; skill measures; TFP growth;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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