Generation and distribution of the total factor productivity gains in US industries

ABSTRACT

This study estimates productivity gains and their distribution among inputs and outputs for 63 American industries over the period 1987–2012. Using the traditional surplus accounting method, the Total Factor Productivity (TFP) growth rates are divided into their price change components in order to determine the stakeholders who do or do not receive price advantages.

An initial analysis showed that TFP of US industries increased at an average trend of 0.8% and established that remunerations to employees and firms’ profitability constituted 49% and 39%, respectively, of the accumulated economic surplus from the productivity gains. Suppliers of intermediate inputs retained 12.1% of the surplus. Finally, customers, equipment and structure providers were the losers in the distribution of economic surplus via, respectively, a significant growth of relative final demand prices and a substantial price decrease of these assets.

A second step analysis underlined that industries with high TFP growth rates mainly benefited customers and firms via output price decreases and profitability improvements while industries with low or negative TFP changes hurt customers through significant output price increases. The sectoral level analysis also showed that employees’ remunerations depend only slightly on productivity gains produced within their industrial sectors.

KEYWORDS:

• Productivity accounting
• surplus accounting method
• total factor productivity
• factor income distribution
• index numbers

JEL CLASSIFICATION:

• D24
• D33
• C43

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Nominal input and output prices are deflated by a general price index such as the GDP price index.

² An input price increase is considered as a price advantage for the corresponding input (its remuneration is increasing) while an output price decrease has to be considered as a price advantage for the customer (output price is becoming cheaper).

³ The additivity property means that the real value (or volume) of an aggregate is equal to that obtained by adding the real values of the components at any aggregation sub-level.

⁴ This property states that an index should not be dependent on the basket of goods of one particular period.

⁵ http://www.bea.gov/industry/.