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April 1989, Vol. 112, No. 4
Multifactor productivity slips in the nonrubber footwear industry
John Duke and Lisa Usher
For many years, the Bureau of Labor Statistics has published, a labor productivity measure for the footwear industry termed output per employee hour.1 Many factors influence movements in labor productivity, for example, technological change, changes in the skills and efforts of the work force, economies of scale, the amount of capital input per worker, and the amount of intermediate purchases input per worker. This article presents a supplementary productivity measure for the footwear industrymultifactor productivityin which output is related to the combined inputs of labor, capital, and intermediate purchases. This measure differs from the traditional measure in that it accounts for the last two influences in the input measure and therefore does not reflect the impact of these influences in the productivity residual.
From 1958 to 1986, output per employee hour in the footwear industry rose at an average rate of 0.6 percent per year, well below the 2.5-percent rate for manufacturing as a whole. Multifactor productivity actually declined over the period by an average 0.9 percent per year. The rise in output per employee hour reflected changes in the contribution of capital per hour, of intermediate purchases per hour, and of other sources (multifactor productivity). The development of the multifactor productivity measure indicates that the low rate of growth in output per employee hour was caused not by declining amounts of capital or intermediate purchases available to labor over the period, but rather by the influence of other factors. The influence of capital, referred to here as the capital effect, is measured as the change in the capital-labor ratio multiplied by the share of capital income in the total output. The influence of intermediate purchases, referred to here as the intermediate purchases effect, is measured as the change in the intermediate purchases-labor ratio multiplied by the share of intermediate purchases in the total output. The capital effect showed an increase of 0.6 percent per year over the period 1958-86, while the intermediate purchases effect rose 0.9 percent. The decline in multifactor productivity was more than offset by these increases in the capital effect and intermediate purchases effect. Multifactor productivity suffered at least in part from a slow pace of development and diffusion of new technology in the industry.
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1 This labor productivity measure was introduced by the Bureau in July 1965 in Indexed of Output per Man-hour 1949-63.
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