Posted Friday, Aug. 10, 2012, at 3:36 PM
Here's a great one for the Total Factor Productivity files. Imagine you have a factory where workers regularly take bogus sick days complete with signed doctor's notes and a protective legal framework. Clearly, your output will be lower than the output of a different factory where local norms among doctors and workers are more honest and cooperative. As a case study, there's this Planet Money piece about Barilla's high-absenteeism factory in southern Italy and the contrast with the low absenteeism factories in northern Italy and how eventually a smart manager helped bring the absenteeism rate down in the south.
That's some good growth-creating stuff. And it's the kind of thing that's obscured by just slapping the "technology" label on the unmeasured residual element of productivity. To be sure, once you've decided to stipulatively define Total Factor Productivity as "technology" you can say that this is a story about the manager of the southern factory discovering the "technology" of norm-shifting or about how northern Italy has a better "technology" of cooperative and honest behavior. But by then you're becoming needlessly paradoxical and distracting from what's really going on, which is about norms and honesty and cooperation.