Measurement Issues and International Comparisons of Output and Productivity Growth

Since the mid-1990s the average growth rates of real GDP and labour productivity in the European Union have fallen behind those in the United States. This development has led to questions about the potential contribution of the differences in measurement methodologies to GDP and productivity growth between the EU and the US. This paper outlines the issues regarding one of the measurement differences between the US and EU, that of using quality-adjusted or hedonic price indices for high technology sectors. We also estimate their contribution to the observed output and productivity differentials. We find that differences in measurement of high technology sectors cannot account for the widening productivity growth difference between the EU and the US. These measurement differences are estimated to have contributed between one and three tenths of a percentage point to differences in growth rates. Ireland proves to be an exception from this general finding however. The application of hedonic price indices for Ireland resulted in an increase of approximately 1.3 per cent in the growth rates of both GDP and labour productivity. This can be explained by the much higher relative importance of high-technology sectors in the Irish economy relative to the rest of the EU. Adjustments to the measurement of these sectors therefore have a larger effect on economy-wide measures of output and productivity.