Why are initial estimates of productivity growth so unreliable?

This paper argues that initial estimates of productivity growth will tend to be much less reliable than those of most other macroeconomic aggregates, such as output or employment growth. Two distinct factors complicate productivity measurement. (1) When production increases, factor inputs typically increase as well. Productivity growth is therefore typically less variable than output growth, meaning that measurement errors will tend to be relatively more important. (2) Revisions to published estimates of production and factor inputs tend to be less highly correlated than the published estimates themselves. This further increases the impact of data revisions on published productivity estimates. To assess the extent of these problems in practice, we detail the importance of historical revisions to the most commonly-used measures of US aggregate productivity growth, expanding on previous empirical work by Aruoba (2008) and Anderson and Kliesen (2006). We find that such revisions have contributed substantially to policymakers' forecast errors for US productivity growth. (C) 2015 Elsevier Inc. All rights reserved.