The Political Economy of Economic Output and Employment

February 1, 2011

Service industries for which value added is imputed from incomes, are included in Gross Domestic Product, potentially distorting measures of recession and recovery.

An alternative index, Narrow Measured Value Added, which excludes all services, has similar historic correlations with employment to GDP, and tracks employment in recent business cycles better. The U.S. economy as measured by NMVA has a lower longterm real rate of growth. Long-term macroeconomic policy requires attention to some version of the productive unproductive labor distinction of the classical political economists.

Authors: Duncan Foley
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