Quality-Adjusted Labour Productivity Measures: An Application to New Zealand

Abstract

In March 2006, Statistics New Zealand released its first productivity series. As part of the ongoing enhancements to the series, the potential for quality-adjusting the Labour Input Index has been examined. A quality-adjusted series is generally considered to provide the most representative measure of productivity. Put simply, the process acknowledges that workers are not homogenous, and as such, have difference skill levels. Not only does this provide a more accurate measure of labour input, but it can also provide insight into the effects that changes in labour composition have on productivity. In practice, this process is undertaken by cross-classifying labour according to groups being reflected through a wage-based weighting process. The paper evaluated the various theories behind quality-adjustment, the success of its international applications, and the potential for an internationally comparable adjustment to be introduced into the current productivity series.