Methodology

The basic methodology as used by the ABS is set out in: C. Aspen 1990, Estimates of Multifactor Productivity ABS Cat. No. 5233.0. There have been refinements in the past few years to align the concepts and definitions more closely with international standards set out in the United Nations’ SNA 93 (see the Australian National Accounts: Concepts, Sources and Methods, Cat. no. 5216.0, 2000 and Australian System of National Accounts Cat. No.5204.0, 1998 for further details).

Labour productivity is defined as the ratio of output to hours worked;
- where output is defined as gross value added, and is measured as a chain volume index.
Multifactor productivity (MFP) is defined as the ratio of output to combined inputs of labour and capital;
- where inputs are combined in a Tornqvist index.
- capital is measured as capital services (see the 1997-98 edition of Australian System of National Accounts Cat. No.5204.0, which has a feature article on the measurement of capital services).
Capital productivity is defined as the ratio of output to capital services.

Tornqvist Index

The Tornqvist index is used in the calculation of multifactor productivity.

Multifactor productivity in period t (MFPt ) is the ratio of output in period t (Yt ) and a combined input index (It ).i.e.

The index It is computed as a Tornqvist index, and is calculated recursively from the geometric mean of the growth rates of the labour input (Lt ) and the capital input (Kt ).
Figure 1 Multifactor productivity for the market sector, 1964-65 to 2000-01

Where Wtk and Wtl are respectively the average cost shares of capital (Sk ) and labour (Sl ) in periods t and t-1. That is

and

In implementing these equations, it is implicitly assumed that constant returns to scale are present and factors are rewarded according to their marginal products.