Adjusting for Quality of Labour and Labour Services in Productivity Measurement

Evaluating the true level of factor inputs (such as labour and capital) is an essential component of estimating an economy’s productive potential. The standard measure of the total economy’s labour input is to aggregate the number of people employed. A related measure of labour inputs is to aggregate the number of hours worked by each person in the economy. Both of these labour measures assume that all workers in the economy are equally productive. This paper is concerned with achieving a more accurate measure of the total labour input in the economy by adjusting standard labour indicators for labour quality.