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Aples and oranges

July 25th, 2002

Jason Soon follows Heath Ledger (sorry! Heath Gibson) in pointing out the danger of comparing apples and oranges, but misses the biggest example of such a comparison, and the central point of Ross Gittins’ article. The big story from supporters of microeconomic reform has been the growth in labour productivity over the last decade (there’s also something called multifactor productivity, which is supposed to take account of capital, but the real action is in labour).

Labour productivity is the ratio of total output to labor input. Gittins starts off with the point that, in important respects, the quality of output, particularly in relation to services delivered by human beings, has declined.

But the really important point is in the denominator. Labour input is measured in hours, but the increase in the intensity and pace of work over the last decade means that there is an ‘apples and oranges’ problem with productivity measures. People produce more in an hour than they used to, but an hour of work is more stressful and tiring than it used to be. To the extent that the two cancel out, there is no real gain in productivity in an economic sense.

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