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Productivity Measurement: Does Output Choice Matter?

Lucy P. Eldridge and Susan G. Powers


This working paper presents three alternative concepts of output (value-added output, sectoral output, and gross output) and describes how they are related. In addition, the paper discusses the advantages and disadvantages of using different output concepts in productivity measurement. These advantages and disadvantages are illustrated with an empirical comparison focusing on the U.S. manufacturing sector and selected industries within that sector.  To understand the performance of the U.S. manufacturing sector, we also explore the performance of individual industries. We first use BLS published data to look at the influence of industry on sector-level performance on both the sector size and total factor productivity (TFP) growth. Both the industry share of output and industry TFP growth will vary over different periods, reflecting the underlying dynamics of production in any given industry. Next, we measure the contribution of industries to manufacturing sector TFP using the three alternative output concepts. We examine the differences in industry contributions that result from the use of the alternative output measures, over 2000-2021 and three different business cycles (2000–07, 2007–19, and 2019–21). We show that one must carefully deliberate before selecting a value-added, sectoral, or gross-output framework for TFP and contribution analysis.