My labour productivity data for USA and UK show that the "Government services" sector for both countries are below their economies' average.

This trend is observed in the 2000s.

Are there any reasons for the low labour productivity in the sector for the 2 countries?

Referring me to some reliable sources will be helpful too.

Thank you


2 Answers 2


The biggest issue (in the US national accounts, at least) is the fact that government production is recorded on a cost basis rather than a market value of output basis (due to the lack of market values for many government services).

From the NIPA Primer, pages 2-3:

GDP is composed of goods and services that are produced for sale in the “market”—the generic term referring to the forum for economic transactions—and of nonmarket goods and services—those that are not sold in the market, such as the defense services provided by the federal government, the education services provided by local governments, the emergency housing or health care services provided by nonprofit institutions serving households (such as the Red Cross), and the housing services provided by and for persons who own and live in their home (referred to as “owner-occupants”).


In cases where there are no similar market transactions available to impute a value of the good or service being produced, the output of these services is valued by estimating the costs (such as employee compensation and purchases of materials and supplies) of producing the good or service.

As a result, any direct government production is recorded as though the workers add no value that they do not capture through their salaries. Given the technical difficulties (not to mention the political issues) that arise when one tries to come up with an alternative estimate of the value of government production, this is probably the most neutral approach, and the approach that is most accurate in differences, though it obviously gets the level wrong.


I'm not positive that this is the issue, but here is a thought. The G component of GDP (government spending) is the spending on goods and services by the government.

G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchases of weapons for the military and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.

Wikipedia: GDP

Notwithstanding heavy use of capital in the armed forced, much of the cost of government services are labor costs. There is some evidence (Does Baumol's Cost Disease Account for Nonfederal Public-Sector Cost Growth in the United States? A New Test of an Old Idea) that government cost growth has been driven by this labor intensity. Since government labor productivity is defined as G/Payroll, if they use relatively less capital and more labor they are going to look less productive.


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