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August 1992, Vol. 115, No. 8
Multifactor productivity in railroad transportation
John Duke, Diane Litz, and Lisa Usher
Labor productivity, as measured by output per employee hour, experienced substantial growth in railroad transportation between 1958 and 1989, averaging 5.2 percent per year.1 Output increased 1.0 percent per year and employee hours dropped 4.0 percent annually. Annual productivity growth in this industry was considerably greater than the annual growth rate in the private business sector, which averaged 1.4 percent annually in the same period.
Changes in output per employee hour reflect a wide range of influences, including changes in technology, composition and skills of the work force, organization of production, and the amount of capital per employee hour and intermediate purchases per employee hour. Labor productivity should not be interpreted as solely representing labor's contribution to production. The multifactor productivity measure of railroad transportation presented in this article is intended as an extension of a labor productivity measure that the Bureau has published for many years.2
The multifactor productivity measure of railroad transportation relates output to the combined inputs of labor, capital, and intermediate purchases. It reflects many of the same influences as the labor productivity measure, but because both capital and intermediate purchases are included as inputs, it does not reflect the effect of these influences on the productivity residual.
Output per employee hour can be calculated as the sum of the effects of changes in capital and intermediate purchases inputs relative to labor, and the multifactor residual. The influence of capital on output per employee hour is referred to as the "capital effect" and is measured as the rate of change in the capital-labor ratio multiplied by the share of capital costs in the total cost of output. Similarly, the influence of intermediate purchases on output per employee hour is referred to as the "intermediate purchases effect" and is measured as the rate of change in the intermediate purchases-labor ratio multiplied by intermediate purchases' share of the cost of output. Multifactor productivity accounted for 3.5 percentage points of the 5.2 percent gain in output per hour, while the capital effect accounted for 0.5 percent and the intermediate purchases effect represented 1.2 percent. (See table 1.)
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1 All average annual rates of growth presented in this article are based on the least squares trend of the logarithms of the index numbers.
2 Railroad transportation in this study consists of Class I establishments engaged in line-haul railroad passenger and freight operations classified as industry number 4011 in the 1987 Standard Industrial Classification Manual. In 1989, Class I railroad systems were defined by the Interstate Commerce Commission as railroads with at least $93.5 million in annual operating revenues. Switching and terminal companies are excluded. Excluding Amtrak, Class I railroads accounted for approximately 91 percent of industry revenues.
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