The Leontief-BLS partnership: a new framework for measurement

Monthly Labor Review, June, 2001 by Martin C. Kohli

Even in their early and imperfect forms, these indexes would turn out to have important uses for the Bureau. In 1955, the Bureau presented the first series on the real output and the productivity of production workers in manufacturing.(45) As price indexes for other sectors became available, the Bureau was able to publish additional measures of sectoral productivity.

The Bureau also established links between the industry-based input-output framework and its measures of consumer expenditures. The consumption data in the input-output table were based on the commodity-flow method, which, in effect, treats consumption as a residual. With such a treatment, it is desirable to have some independent estimates of the composition of consumption spending. Thus, in the early 1950s, the Bureau recoded the results of its 1935-36, 1941, and 1950 surveys of consumer expenditures to be consistent with the input-output table and adjusted the prices so that all of the surveys were expressed in 1947 dollars.(46)

A new framework for measurement

According to the accounts of Dorfman and Koopmans cited earlier, the Bureau was important in the development of input-output analysis because it secured the resources for the detailed 1947 table. The Bureau did indeed play that role; however, the passage quoted from Leontief at the beginning of this article referred to the "continual cooperative relationship [he had] with the Bureau" [my italics] as providing decisive benefits, suggesting that, by 1953, the Bureau was playing an ongoing role in developing input-output analysis. A reexamination of the historical record supports Leontief's contention by documenting two additional contributions the Bureau made.(47)

In the first of these contributions, the Bureau's wartime projections demonstrated that input-output analysis had important applications for government policymakers. Leontief's first application, calculating the effects of improvements in productivity on relative prices and quantities, had little interest outside academia. By contrast, the Bureau's conditional forecasts of postwar employment aroused significant interest. The rough accuracy of these forecasts depended on the assumptions about final demand, as well as assumptions about labor productivity, so that the input-output technique was not by itself sufficient. But without the 1939 table, it would not have been possible to quantify the effects of increased demand for construction and consumer durables on industrial output and employment.

The Bureau's second contribution consisted of a series of conceptual refinements. The most important of these was Hoffenberg's decision to take capital-account transactions out of the interindustry portion of the table. This move had the obvious effect, suggested, but not stated, by the Battelle study, of facilitating the reconciliation of the input-output table and the national income accounts, which in turn led to indisputable improvements in the accounts. The second major conceptual refinement was treating competitive imports as subtractions from final demand, classified according to industries that produced rival products. This way of classifying imports, along with the compilation of capital requirements by industry, made possible Leontief's pathbreaking studies of the factor content of U.S. trade.