What do we Really know about Productivity Differentials across Countries? Jayati Ghosh speaking at 24th Annual David Gordon Memorial Lecture, Union for Radical Political Economics (URPE) Conference

Jayati Ghosh critiques and details the conceptual, methodological and empirical problems in defining and measuring productivity, the “holy grail” of economic growth. Productivity measurement encounters problems in both its numerator (output) and the denominator (input). While output measured as GDP doesn’t account for informal/intangible goods and services, the use of Purchasing Power Parity (PPP) rates over Market Exchange Rates (MER) limits meaningful comparison across countries, specifically by overstating the incomes of poorer countries. This is apart from fundamental flaws in the wide usage of labour productivity, as evidenced during the pandemic when labour productivity rose as output fell, but overall hours worked fell even more.

Productivity growth is also influenced by changes in the sectoral composition of output. Finally, wages reflect discrimination in the labour market, thus distorting measures of productivity. Current measures of labour productivity also exclude unpaid work. For these reasons, it remains a “statistical chimaera”. Prof. Ghosh concludes that productivity measures that attempt to monetarily value intangibles and exclude unpaid labour are hardly a good proxy for economic growth and development.