A dynamic model to estimate the “pure” productivity

As asserted in standard literature, there is an implicit circular relationship between the productivity growth and the potential level of production (and, consequently, the estimation of the natural rate of unemployment is also altered). In order to avoid such emerging impediment in any estimating macroeconomic model, an autonomous dynamic model to estimate the trend of productivity growth must be used. Moreover, taking into account that the current level of productivity is implicitly influenced by the actual unemployment rate, it is usually recommended as a more accurate solution to try to obtain firstly an estimate for the “pure” productivity. This must be neutral relating to the short-term changes in employment, but in long run, it is affected by factors such as the general technological progress, the increase in the educational level, the growth of the R&D system, the expansion of the “new economy”, etc. In this paper, we use a simple dynamic model to estimate the growth of pure productivity independently of the actual level of employment and, implicitly, of the unemployment rate. Afterwards, the estimated changes in the pure productivity level are compared with the potential production trend in the case of the Romanian economy during the transition period.