This factor captures the increase and the quality of worker inputs from the ever-evolving and changing mix of workers. As the workforce evolves, workers with different skills are employed at different rates.

This change in composition directly affects how much output can be produced from a given amount of worker hours.

Turn Changes

An example would be as follows: As relative wages change, firms substitute between different types of workers. This in turn changes the average productivity of the workforce. This composition effect is often referred to as a change in worker quality.

Estimates of worker hours are relatively easy to compute by simply adding up the hours worked of all types of workers. From there, the growth rate can be extracted. In this calculation, all types of workers are essentially treated the same and receive identical weights.

More difficult is the construction of an estimate of the aggregate worker that accounts for the changing composition of workers. Instead of simply summing up the hours, estimates use weights that are equal to marginal products.

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