Since 1994, multifactor productivity has declined in nine out of 18 domestic manufacturing industries. And if domestic manufacturing can’t become more efficient, it will have a tough time competing in the global economy and an even tougher time adding jobs.
Multifactor productivity sounds like something that is tangible and very important. But it is basically what is left over after you subtract from the value of output the measured value of all inputs, including capital. So, if you under-estimate the value of some input, you over-estimate multifactor productivity, and conversely.
Mandel goes on to write
there’s a simple way that domestic factories can increase their productivity, expand their market share, and hire more workers. The answer (perhaps surprisingly) is to invest more in information technology.
Actually, if the value of new capital investment is properly measured, more investment will not increase multifactor productivity at all. Mandel may be correct that manufacturing is ripe for more investment in information technology. But basing his argument on multifactor productivity does not persuade me.
Speaking of the meaning of productivity measurements, Dietrich Vollrath has a nice rant (pointer from Mark Thoma). One of many excellent paragraphs:
If MFP is stagnant but the manufacturing sector has shed workers, then this means either value added in manufacturing has fallen (it has not) or the other inputs like capital have risen (they must have). This indicates that labor productivity, value-added divided by number of workers only, must be rising.
Trends in the productivity of single factors are amenable to interpretation and speculation of implications. But lumping all the factors together into one big aggregate metric makes any effort at analysis totally hopeless.
Sounds like an economies of scale argument natural to manufacturing. It is 9 out of 18 though so there is plenty of room for rising labor productivity in the other half. It is a matter of which industries.