OECD Bern Workshop ,
October 16-18, 2006
Estimates of Labor and
Total Factor Productivity
by 72 industries in Korea (1970-2003)
Oct 17. 2006
Hak K. Pyo, Keun Hee Rhee and Bongchan Ha
Institute of Economic Research
Seoul National University
Contents
1. Introduction
2. Data Structure
2.1 Gross Output Data
2.2 Measurement of Capital Input
2.3 Measurement of Labor Input
2.4 Energy, Material, and Service and Input Shares
3. Estimates of Labor Productivity and TFP by 72-industry
3.1 Trend of Labor Productivity Level and Growth Rates by Sector
3.2 Gross Output Growth Accounting and TFP Growth
3.3 Cumulative Contribution of Sectors to TFP growth
3.4 Relations between Labor Productivity and TFP growth
4. Conclusion
1. Introduction

The purpose
- To explain the data structure of Korea for the estimation of produc
tivities by industry in KLEMS model
- To present preliminary estimates of labor productivity and total factor
productivity (TFP) at reasonably detailed industry level.

We have used 72-sector industrial classification following the
guidelines of EU KLEMS project for the future comparability with EU
member countries, the United States, and Japan.

An analysis based on detailed industrial classification gives us better
views on productivity and growth, which is difficult to grasp in
broader industrial classifications.
Economy growth and investment growth
경제성장률과 설비투자 변화율
50
40
30
20
설비투자 변화율
경제성장률
0
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
%
10
-10
-20
-30
-40
-50
년도
Average economy growth and average
investment growth
평균성장률과 평균설비투자변화율
14
12
8
평균 설비투자변화율
평균 경제성장률
6
4
년도
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
0
1986
2
1985
%
10
2. Data Structure
Gross Output Data
(1) Estimation of Use Tables
- In order to reconcile the National Accounts data to our industrial classification,

we have used other data sources, such as Mining & Manufacturing Census and
Surveys, Wholesale and Retail Surveys, and so on.
- Since we do not have detailed information on intermediate input structures, we
have assumed the same intermediate input structures for the industries
belonging to the same category of National Accounts classification.
- As for Input-Output Tables, they have detailed commodity classifications
enough to match the 21-commodity classification in National Accounts.
However, since they are not annually published, we have used interpolation
method for the missing years.
2. Data Structure
Gross Output Data
(1) Estimation of Use Tables
- In order to reconcile the National Accounts data to our industrial classification,

we have used other data sources, such as Mining & Manufacturing Census and
Surveys, Wholesale and Retail Surveys, and so on.
- Since we do not have detailed information on intermediate input structures, we
have assumed the same intermediate input structures for the industries
belonging to the same category of National Accounts classification.
- As for Input-Output Tables, they have detailed commodity classifications
enough to match the 21-commodity classification in National Accounts.
However, since they are not annually published, we have used interpolation
method for the missing years.
2. Data Structure
Gross Output Data
(2) Estimation of Make and Use Tables for the Missing Years
- We have estimated the Make and Use Tables for the missing years,
1970-1984 and 2003-2004 through a biproportional adjustment
methodology, RAS.
- For the years 1970-1984 we have used the 1985 tables as benchmark
tables, and for the years 2003-2004 we have used the 2002 tables.
- We have annual series of each industry's gross output, value-added,
intermediate input, and so on. However, because we do not have
annual series of each commodity's data in Input-Output Tables, we
have applied the interpolation method between existing tables and
normalized them to the National Accounts data

2. Data Structure
Gross Output Data
(3) Aggregation Issues
- We have applied a simple summation for the Make Table aggregation
over commodities under the assumption of the same deflator over all
commodities produced in the same industry following Timmer (2005).
- With regard to the aggregation in Use Tables, we have not applied any
aggregation technique considering each commodity as different inputs.

2. Data Structure
Gross Output Data
(3) Make Tables at Purchase Prices and Use Tables at Basic Prices

Figure 1. Make Table at purchase prices
commodity
industry
PYbas
ij
PYD
i
PYIM
i
TRi
TT i
Ti
pur
PYi
PYj
2. Data Structure
Gross Output Data
Figure 3. Trend of Real Gross Output (2000 prices)
1800
1600
1400
1200
1000
800
600
400
200
0
197
0
197
2
197
4
197
6
197
8
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
TrillionWon

2. Data Structure
Measurement of Capital Input
(1) Estimation of Capital Stock
- Estimating Method for 1970-1997:
we have applied the polynomial benchmark year estimation method to
estimating depreciation by types of assets only. Thus we have
generated net stocks by types of assets first for the period of 1968-97
and then, distributed them over different sectors of industries by using
interpolated industrial weights between the respective benchmark years.

- Estimating Method after 1997
we have to estimate capital stocks by a modified perpetual inventory
method using 1997 NWS as benchmark estimates .
2. Data Structure
Measurement of Capital Input
(1) Estimation of Capital Stock
- Reconciliation with Database of Pyo (2003)
Since the database of Pyo (2003) covers 10 broad categories of
industrial sector together with 28 sub-sectors of Manufacturing, it has
been reclassified and reconciled with 72 industry classification using
other sources .

Table 2. Depreciation Rates of Assets (Unit: %)
before 1978 1978-1987 after 1988
Residential Building
5.5
1.2
3.3
Non-residential Building
-6.7
-1.3
3.0
Other Construction
9.7
8.4
1.0
Transportation Vehicles
49.3
28.7
16.9
Machinery
1.1
11.4
9.2
Source : Pyo (2003)
2. Data Structure
Measurement of Labor Input
(1) data
- For the present study, we have obtained the raw data file of Survey
Report on Wage Structure from the Ministry of Labor and
Economically Active Population Survey from National Statistical
Office for the period of 1980-2003.
- The data are classified by two types of gender (Male and Female), three
types of age (below 30, 30-49, and 50 above), and four types of
education (middle school and under, high school, college, and
university above).
Table 3. Classification of Labor Input

Categories
Gender
Age
(1) male (2) female
(1) below 30 (2) 30-49 (3) above 50
Education (1) middle school and under (2) high school
(3) college (4) university or above
2. Data Structure
Measurement of Labor Input
(2) Estimating Labor Quantity and Quality Inputs

2. Data Structure

Energy, Material, and Service and Input Shares
- In order to decompose intermediate inputs into energy (E),
material (M), and service (S) inputs, we have identified coal
and lignite, crude petroleum and natural gas, uranium and
thorium ores, metal ores, coke, refined petroleum products and
nuclear fuel, gas, water, and electricity commodities as energy
inputs, both primary commodities and remaining
manufacturing commodities as material inputs, and remaining
service inputs as service inputs.
- Regarding shares of inputs, we have used compensation of
employees as shares of labor inputs and remaining valueadded as shares of capital inputs. This method may
underestimate the shares of labor input by allocating the
compensation of self-employed to the shares of capital input,
and this gap would be especially large in primary industry.
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(1) The Level of Labor Productivity and its Trend
- The general trend of labor productivity reveals a rising trend but with
a remarkable difference between Manufacturing and Service. the
catch-up process of Korea has been well-documented by Timmer
(1999) and Pyo (2001).
- As observed in Pyo and Ha (2005), the labor productivity level was
not reduced during the years (1997-1998) of the Asian Financial
Crisis because of IMF-mandated industrial restructuring: the reduced
output was matched by reduced employment leaving labor
productivity level unaffected.
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(1) The Level of Labor Productivity and its Trend
Figure 4 Trend of labor productivity level <unit: gross output per hour(won)>
80000
70000
60000
50000
40000
30000
20000
10000
0
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
Economy-w ide
M anufacturing
Service
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(1) The Level of Labor Productivity and its Trend
The relatively sluggish productivity gain in Service sector has
been pointed out by IMF in their recent consultation with the
Korean authorities as a bottleneck of sustainable growth for
Korea. Inklaar, Timmer and van Ark (2006) also pointed out
the slower productivity gain of service industries in Europe
relative to those in the United States.
-
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(2) The growth rates of labor productivity by Sector
- The growth rates of labor productivity as summarized in
Table 4 and shown in Figure 5 confirm the remarkable
difference between Manufacturing and Service sector.
Throughout the entire period of 1971-2003, the economy-wide
labor productivity has grown at the average rate of 5.59
percent but with the sectoral difference between
Manufacturing (6.99 %) and Service (2.91 %). The difference
did not shrink but rather has expanded as the process of
industrialization continued. For example, the difference in the
1990’s (9.55 % vs. 2.64 %) has been more than doubled since
1970’s (4.01 % vs. 2.15 %).
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(2) The growth rates of labor productivity by Sector
- The observed difference in both levels and growth rates of labor
productivity between Manufacturing and Service can signal the
difference in the degree of foreign competition, the proportion of
tradable and non-tradable and the degree of domestic competition
due to historically different regulatory environments.
- For example, the proportion of public enterprises and their
subsidiaries in total output of many service industries such as utilities
(electricity, water and gas), transportation and communication is a lot
greater than their proportion in Manufacturing so that their
productivity improvement could have been sluggish over time. In
addition, many non-tradable sectors of service industries such as
retail trade, real estate and financial services, hotels and restaurants
etc. have been subject to all kinds of regulations such as zoning,
sanitary standards and segregated financial market services etc
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(2) The growth rates of labor productivity by Sector
Table 6 Growth Rates of Labor Productivity by Sector
(%)
Economy-wide
Manufacturing
Service
72-'79
4.32
4.01
2.15
80-'89
6.87
6.75
3.77
90-'99
5.54
9.55
2.64
90-'98
5.14
9.01
2.40
99-'03
5.87
8.61
3.33
5.59
6.99
2.91
Period
72-'03
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates
by Sector
(2) The growth rates of labor productivity by Sector
Figure 5 The growth rates of labor productivity <unit: log growth rates(%)>
Economy-w ide
12.00
10.00
8.00
6.00
4.00
2.00
0.00
-2.00
-4.00
-6.00
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(2) The growth rates of labor productivity by Sector
M anufacturing
20.00
15.00
10.00
5.00
0.00
-5.00
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
-10.00
-15.00
Service
Figure 5 The
growth rates of
labor
productivity
<unit: log
growth
rates(%)>
15.00
10.00
5.00
0.00
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
-5.00
-10.00
Figure 6 Growth
Rates of Labor
Productivity in
Manufacturing (197203/ %)
-10.00
A irc ra ft a n d sp a c e c ra ft
T o b a c c o p ro d uc ts
Le a th e r, le a th e r p ro d uc ts a n d fo o tw e a r
R a ilro a d e q uip m e n t a n d tra n sp o rt e q uip m e n t n e c
B uild in g a n d re p a irin g o f sh ip s a n d b o a ts
P rin tin g a n d re p ro d uc tio n
C o ke , re fin e d p e tro le um p ro d uc ts a n d n uc le a r fue l
W e a rin g a p p a re l, d re ssin g a n d d yin g o f fur
M o to r ve h ic le s, tra ile rs a n d se m i- tra ile rs
F o o d p ro d uc ts a n d b e ve ra g e s
P h a rm a c e utic a ls
In sula te d w ire
P ulp , p a p e r a n d p a p e r p ro d uc ts
T e le c o m m un ic a tio n e q uip m e n t
P ub lish in g
M a c h in e ry, n e c
T e xtile s
F a b ric a te d m e ta l p ro d uc ts
O th e r n o n - m e ta llic m in e ra l p ro d uc ts
M a n ufa c turin g n e c
S c ie n tific in strum e n ts
R a d io a n d te le visio n re c e ive rs
R ub b e r a n d p la stic s p ro d uc ts
C h e m ic a ls e xc lud in g p h a rm a c e utic a ls
O ffic e , a c c o un tin g a n d c o m p utin g m a c h in e ry
B a sic m e ta ls
W o o d a n d p ro d uc ts o f w o o d a n d c o rk
O th e r e le c tric a l m a c h in e ry a n d a p p a ra tus n e c

E le c tro n ic va lve s a n d tub e s
3. Estimates of Labor Productivity and TFP
by 72-industry
Trend of Labor Productivity Level and Growth Rates by
Sector
(2) The growth rates of labor productivity by Sector
30.00
25.00
20.00
15.00
10.00
5.00
0.00
-5.00
Figure 7 Growth
Rates of Labor
Productivity in
Service (1972-03/ %)
W a te r sup p ly
- 4 0 .0 0
P riva te h o use h o ld s w ith e m p lo ye d p e rso n s
O th e r se rvic e a c tivitie s
P ub lic a d m in a n d d e fe n c e
O th e r b usin e ss a c tivitie s, n e c
C o m p ute r a n d re la te d a c tivitie s
S a le , m a in te n a n c e a n d re p a ir o f m o to r ve h ic le s a n d m o to rc yc le s
H o te ls a n d re sta ura n ts
W h o le sa le tra d e a n d c o m m issio n tra d e
Im p uta tio n o f o w n e r o c c up ie d re n ts
A ir tra n sp o rt
O th e r re a l e sta te a c tivitie s
H e a lth a n d so c ia l w o rk
O th e r re c re a tio n a l a c tivite s
R e se a rc h a n d d e ve lo p m e n t
R e ta il tra d e
M e d ia a c tivitie s
R e n tin g o f m a c h in e ry a n d e q uip m e n t
S e w a g e a n d re fuse d isp o sa l, sa n ita tio n a n d sim ila r a c tivitie s
E d uc a tio n
A c tivitie s re la te d to fin a n c ia l in te rm e d ia tio n
C o n struc tio n
Le g a l, te c h n ic a l a n d a d ve rtisin g
A c tivitie s o f m e m b e rsh ip o rg a n iza tio n s n e c
S up p o rtin g a n d a uxilia ry tra n sp o rt a c tivitie s
In la n d tra n sp o rt
In sura n c e a n d p e n sio n fun d in g
W a te r tra n sp o rt
P o st a n d te le c o m m un ic a tio n s
G a s sup p ly
F in a n c ia l in te rm e d ia tio n

E le c tric ity sup p ly
3. Estimates of Labor Productivity and TFP
by 72-industry
Trend of Labor Productivity Level and Growth Rates by
Sector
(2) The growth rates of labor productivity by Sector
3 0 .0 0
2 0 .0 0
1 0 .0 0
0 .0 0
- 1 0 .0 0
- 2 0 .0 0
- 3 0 .0 0
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(3) Trend of TFP Growth by Sector
- The growth rates of TFP by sector are shown in Figure 8.
Throughout the entire period 1972-2003, Korean economy
experienced about 2 break-points: mid-1970s which was the
first oil shock and in 1997 which was the financial crisis.
- The difference between two break points can be
summarized as follows. During the second half of 1970’s,
the growth rate of gross output was not low, but the growth
rates of inputs such as capital(4.56%), labor(1.79%),
energy(0.69%), intermediate goods(3.34%) especially, were
relatively higher.
- Therefore, the growth rates of TFP have been estimated as
negative. In case of late 1990’s the negative growth of TFP
has been resulted from the shrink of gross output rooted
from economic crisis.
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(3) Trend of TFP Growth by Sector
- In addition we observe that the estimated TFP growth
rates in Manufacturing are in general greater than in Service.
It maybe due to the fact that an innovation process such as
product innovation or process innovation is more sensitive
and stronger in manufacturing than in service.
- Also the R&D investment for innovation is in general
more intensive in manufacturing than in service. So the
growth rates of TFP in Manufacturing seem to be greater
than in Service.
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(3) Trend of TFP Growth by Sector
Economy-w ide
3.00
2.00
1.00
0.00
-1.00
Figure 8 The
growth rates of
TFP (%)
-2.00
-3.00
-4.00
-5.00
-6.00
72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
3. Estimates of Labor Productivity and TFP
by 72-industry

Trend of Labor Productivity Level and Growth Rates by
Sector
(3) Trend of TFP Growth by Sector
M anufacturing
5.00
4.00
3.00
2.00
1.00
0.00
-1.00
72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
-2.00
-3.00
-4.00
-5.00
Service
3.00
Figure 8 The
growth rates of
TFP (%)
2.00
1.00
0.00
-1.00
-2.00
-3.00
-4.00
-5.00
-6.00
72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
3. Estimates of Labor Productivity and TFP
by 72-industry

Gross Output Growth Accounting and TFP Growth
Table 9 Gross Output Growth Accounting and TFP growth in economy-wide
<unit: log growth rates(%)>
Labor input
Period
Gross
output
Capital
input
Energy
input
Intermediate
input
Service
input
TFP
'72-79
9.48
0.76
0.69
3.34
1.13
-2.03
'80-'89
0.28
0.34
0.45
3.18
0.98
0.08
'90-'99
0.49
0.19
0.31
0.70
1.64
1.76
-0.56
2.54
0.49
0.15
0.34
0.63
1.30
1.71
-0.84
7.61
1.11
0.48
0.33
0.14
0.75
2.78
1.62
0.86
7.81
2.98
0.85
0.44
0.41
0.61
2.63
1.32
-0.59
Total
labor
Quantity
labor
Quality
labor
4.56
1.79
1.03
8.36
3.05
0.62
6.43
2.40
'90-'98
5.84
'99-'03
'72-'03
contribution to output growth
'72-79
100.0
48.1
18.9
10.9
8.1
7.3
35.3
11.9
-21.5
'80-'89
100.0
36.5
7.4
3.4
4.0
5.3
38.0
11.8
0.9
'90-'99
100.0
37.3
7.7
2.9
4.8
10.9
25.6
27.3
-8.7
'90-'98
100.0
43.5
8.4
2.5
5.8
10.8
22.4
29.4
-14.4
'99-'03
100.0
14.6
6.3
4.4
1.9
9.9
36.6
21.3
11.4
100.0
38.2
10.9
5.6
5.3
7.8
33.7
17.0
-7.5
'72-'03
3. Estimates of Labor Productivity and TFP
by 72-industry
Gross Output Growth Accounting and TFP Growth

Table 10 Gross Output Growth Accounting and TFP growth in manufacturing
<unit: log growth rates(%)>
Labor input
Period
Gross
output
Capital
input
Energy
input
Intermediate
input
Service
input
TFP
'72-79
15.30
0.43
1.66
8.29
1.17
0.06
'80-'89
0.40
0.19
0.88
5.83
0.80
0.49
'90-'99
-0.14
-0.34
0.20
1.19
2.94
1.17
0.58
1.26
-0.22
-0.44
0.22
1.08
2.17
1.04
0.23
10.11
0.70
0.26
0.16
0.09
1.02
5.26
1.32
1.55
10.18
1.59
0.59
0.35
0.24
1.15
5.33
1.04
0.48
Total
labor
Quantity
labor
Quality
labor
2.41
1.72
1.28
10.27
1.68
0.59
6.94
1.20
'90-'98
5.56
'99-'03
'72-'03
contribution to output growth
'72-79
100.0
15.8
11.2
8.4
2.8
10.8
54.2
7.6
0.4
'80-'89
100.0
16.3
5.7
3.9
1.8
8.6
56.8
7.8
4.8
'90-'99
100.0
17.3
-2.0
-4.9
2.8
17.2
42.3
16.9
8.4
'90-'98
100.0
22.6
-3.9
-7.9
4.0
19.5
39.0
18.7
4.1
'99-'03
100.0
6.9
2.5
1.6
0.9
10.1
52.1
13.0
15.3
100.0
15.6
5.8
3.4
2.4
11.3
52.3
10.2
4.7
'72-'03
3. Estimates of Labor Productivity and TFP
by 72-industry

Gross Output Growth Accounting and TFP Growth
Table 11 Gross Output Growth Accounting and TFP growth in service
<unit: log growth rates(%)>
Labor input
Gross
outpu
t
Capital
input
'72-79
7.86
'80-'89
'90-'99
Energy
input
Intermediate
input
Service
input
TFP
0.54
0.26
1.43
1.36
-2.01
1.11
0.22
0.18
1.52
1.27
-0.08
1.28
1.12
0.16
0.37
0.69
2.37
-1.35
3.37
1.39
1.22
0.17
0.34
0.69
2.40
-1.58
5.87
1.39
0.86
0.68
0.18
0.54
0.73
2.02
0.33
7.22
3.51
1.45
1.17
0.28
0.30
1.14
1.73
-0.92
Total
labor
Quantity
labor
Quality
labor
4.77
2.05
1.52
7.92
3.70
1.33
6.54
3.17
'90-'98
6.61
'99-'03
Period
'72-'03
contribution to output growth
'72-79
100.0
60.7
26.1
19.3
6.8
3.3
18.1
17.3
-25.6
'80-'89
100.0
46.6
16.8
14.0
2.8
2.3
19.2
16.0
-0.9
'90-'99
100.0
48.5
19.6
17.2
2.5
5.7
10.6
36.3
-20.7
'90-'98
100.0
51.1
21.0
18.4
2.6
5.1
10.5
36.4
-24.0
'99-'03
100.0
23.6
14.7
11.6
3.1
9.3
12.4
34.4
5.6
100.0
48.7
20.1
16.3
3.9
4.2
15.8
23.9
-12.8
'72-'03
3. Estimates of Labor Productivity and TFP
by 72-industry

Gross Output Growth Accounting and TFP Growth
Table 12 The investment in IT sector
IT Investment (billion won)
Growth(%)
1995
15,125.7
-
1996
17,916.0
16.9
1997
19,122.0
6.5
1998
17,099.2
-11.2
1999
23,716.0
32.7
2000
32,190.9
30.6
2001
31,502.0
-2.2
2002
33,143.8
5.1
2003
31,551.8
-4.9
2004
31,391.9
-0.5
Year
3. Estimates of Labor Productivity and TFP
by 72-industry

Cumulative Contribution of Sectors to TFP growth
- Following Fukao et. al, (2006) we can examine the sectoral
contribution of TFP growth in Manufacturing and we can
identify what are core sectors for enhancing productivity.
As shown in Figure 9, the weight of gross output of the
sectors with positive TFP growth is 72.4% while the weight
with negative TFP growth is 27.6% during 1972-2003.
- The former are basic metals, chemicals, machinery, textiles,
rubber and plastic, fabricated metal, wood, other non
metallic mineral, motor vehicles and trailers as non IT
sectors, and electronic valves and tubes, office, accounting
and computing machinery, telecommunications, radio and
TV receivers as IT sectors. The latter are leather and
footwear, wearing and apparel, coke and refined petroleum
etc.
3. Estimates of Labor Productivity and TFP
by 72-industry

Cumulative Contribution of Sectors to TFP growth
Figure 9 Cumulative Contribution of sectors to TFP Growth in Economy-wide (1972-2003)
O ffic e , a c c o u n tin g a n d
c o m p u tin g m a c h in e ry
T e le c o m m u n ic a tio n e q u ip
E le c tric ity s u p p ly
G a s s u p p ly
In s u re n c e T e xile s
R u b b e r a n d p la s tic s
M a c h in e ry
C o n s tru c tio n
W a te r tra n s p o rt
0.70
C h e m ic a ls
O th e r e le c tric a l m a c h in e ry
In la n d tra n s p o rt
P ost and
te le c o m m u n ic a tio n s E le c tro n ic va lve s a n d
tu b e s
B a s ic m e ta ls
0.20
1.20
W e a rin g a p p a re l
C o m p u te r a n d re la te d
a c tivitie s
F o o d a n d b e ve ra g e s
R e ta il tra d e
F o re s try
O ther recrea tio n a l a ctivities
W h o le s a le tra d e
H e a lth a n d s o c ia l w o rk
O th e r s e rvic e a c tivitie s
F in a n c ia l in te rm e d ia tio n
M e d ia a c tivitie s
Im p u ta tio n o f o w n e r
o c c u p ie d re n ts
-0.30
H o te ls a n d re s ta u ra n ts
-0.80
a g ric u ltu re
-1.30
0.00
0.20
0.40
0.60
0.80
1.00
3. Estimates of Labor Productivity and TFP
by 72-industry

Cumulative Contribution of Sectors to TFP growth
Figure 10 Cumulative Contribution of sectors to TFP Growth in Manufacturing (1972-2003)
1.6
1.4
Other non metallic mineral
Leather and footwear
Wearing apparel
Coke, refines petroleum
Motor vehicles, trailers
Radio and TV receivers
Wood
Office, accounting and
computing machinery
1.2
1.0
Rubber and plastics
Machinery
0.8
Telecommunication
Food and beverages
Fabricated metal
Texiles
Other eletrical machinery
0.6
Chemicals
Eletronic valves and tubes
0.4
Basic metals
0.2
0.0
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
3. Estimates of Labor Productivity and TFP
by 72-industry

Cumulative Contribution of Sectors to TFP growth
Figure 11 Cumulative Contribution of sectors to TFP Growth in Service (1972-2003)
0.80
G a s s u p p ly
In s u ra n c e a n d p e n tio n
0.60
0.40 In la n d tra n s p o rt
C o n s tru c tio n
Leg a l,techn ica l a n d a d vertisin g
E lectricity sup p ly
W a te r tra n s p o rt
O th e r b u s in e s s a c tivitie s
A ir tra n s p o rt
C o m p uter a n d rela ted a ctivities
R e ta il tra d e
P o st a n d teleco m m un ica tio s
0.20
F in a n c ia l in te rm e d itio n
O th e r re c re a tio n a l
a c tivitie s
0.00
H e a lth a n d s o c ia l w o rk
W h o le s a le tra d e
-0.20
O th e r s e rvic e a c tivitie s
-0.40
Im p u ta tio n o f o w n e r
o c c u p ie d re n ts
-0.60
M e d ia a c tivitie s
-0.80
-1.00
H o te l a n d re s ta u ra n ts
-1.20
0.00
0.20
0.40
0.60
0.80
1.00
3. Estimates of Labor Productivity and TFP
by 72-industry
Relations between Labor Productivity and TFP
growth
Figure 12 Plotting between Sectoral Labor Productivity Growth and TFP Growth (1972-2003, %)
15.00
10.00
5.00
TFP grow th

0.00
-5.00
-10.00
-15.00
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
Labor productivity grow th
* In case of EU-KLEMS code, #5,#6,#33,#39,#66#,#72 are excluded because of data insufficiency
3. Estimates of Labor Productivity and TFP
by 72-industry
Relations between Gross Output Growth and
TFP growth
Figure13 Plotting between Sectoral Gross output Growth and TFP Growth (1972-2003, %)
15.00
10.00
5.00
TFP grow th

0.00
-5.00
-10.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
G ross output grow th
* In case of EU-KLEMS code, #5,#6,#33,#39,#66#,#72 are excluded because of data insufficiency
3. Estimates of Labor Productivity and TFP
by 72-industry

Relations between Labor Productivity and TFP
growth
3. Estimates of Labor Productivity and TFP
by 72-industry

Relations between Gross Output Growth and
TFP growth
Wilcoxon Rank-Sum(Mann-Whitney)
Test
This test is used in place of a two sample t test when
the populations being compared are not normal.
Null hypothesis: two distributions are the same.
(1)TFP-LP Rank Test
n1
n2
u
66
66
2178
P(two-tailed) P(one-tailed)
1*
0.500766*
1*
0.5*
*These values are approximate
The two samples are not significantly different(P>=0.05, two-tailed test)
(2)TFP-Gross output Rank Test
n1
n2
u
66
66
2178
P(two-tailed) P(one-tailed)
1*
0.500777*
1*
0.5*
*These values are approximate
The two samples are not significantly different(P>=0.05, two-tailed test)
4. Conclusion

Throughout the entire period of 1971-2003, the
economy-wide labor productivity has grown at the
average rate of 5.59 percent but with the sectoral
difference between Manufacturing (6.99 %) and
Service (2.91 %).

The difference did not shrink but rather has expanded
as the process of industrialization continued.
4. Conclusion

The growth rate of economy-wide TFP has been
estimated as -0.59 percent. The growth rates of TFP in
Manufacturing and Service are estimated as 0.48
percent and -0.92 percent respectively throughout the
entire period of 1972-2003.
4. Conclusion



We can identify sectors that have contributed to the
growth of economy-wide TFP positively by
decomposing relative contribution of each sector to
total TFP growth (Y-axis) with each sector’s relative
weight of output (X-axis).
Leading sectors in this group include Financial
Intermediation and Post and Telecommunications in
Service and Basic Metals and Electronic Valves and
Tubes in Manufacturing among others.
We also identify sectors with negative contribution to
Economy-wide TFP growth such as Agriculture,
Hotels and Restaurants, Imputation of owner-occupied
housing and Media activities etc.
4. Conclusion



The relations of TFP with labor productivity and
output growth can be examined by looking at the
scatter diagrams and a regression analysis.
A visual inspection tells us that TFP growth is
positively correlated with both labor productivity
growth and output growth and TFP-LP relation is
stronger than TFP –Output relation. We have adopted
an implicit hypotheses that higher LP and output
growth induces TFP growth through enhanced human
capital and economies of scale.
In both regressions, the coefficients of LP growth and
Output Growth are significant. The TFP-LP regression
seems more significant than TFP-Output regression.