No. 422 - Multifactor Productivity and Labour Quality in Italy, 1981-2000

We investigate how the evidence for Italy from simple growth accounting exercises is modified by more accurate measurements of inputs. We describe the dynamics of total factor productivity in the last 20 years in Italy, and review theoretical and measurement issues that complicate the picture emerging from this simple exercise. We adjust the labour input for its composition and verify its impact on estimated multifactor productivity in the whole economy. We replicate the labour-quality adjustment for the industrial sector together with corrections for hours worked and capital utilisation. We find that a sizeable part of the observed growth of total factor productivity vanishes when these adjustments are applied. They are not sufficient, however, to overturn the evidence of a productivity slowdown in the Italian economy in the second half of the 1990s.