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Aggregate Production Functions and Productivity Measurement: A New Look

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  • Muellbauer, John

Abstract

Many economists currently take a somewhat jaundiced view of the estimation of aggregate production functions. Three problems seem particularly troublesome; the unobservables problem, especially with regard to utilization, the aggregation problem and the simultaneous equation problems. This paper presents theoretical arguments and empirical evidence from British manufacturing for the view that the first of these is the most serious with important dimensions in the measurement of capital and output as well as that of utilization. New light is shed on two classic questions. One was first raised by Feldstein (1967) who observed in a cross-section context that the elasticity of output w. r. t. average observed hours of work significantly exceeded the elasticity w. r. t. employment. Craine (1973) observed a similar result for time-series data. The other question is one with which most researchers on productivity have struggled: how to correct productivity for cyclical variations in the utlization of inputs. A novel answer based on the use of overtime hours data is found to give excellent empirical results.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 34.

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Date of creation: Nov 1984
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Handle: RePEc:cpr:ceprdp:34

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Related research

Keywords: Aggregate Production Functions; British Manufacturing Productivity; Unobservables;

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Cited by:
  1. Jorg Scheibe, 2003. "The Chinese Output Gap During the Reform Period 1978-2002," Economics Series Working Papers 179, University of Oxford, Department of Economics.
  2. Cameron, G., 1999. "Why did UK Manufacturing Productivity Growth Slow Down in the 1970s and Speed Up in the 1980s?," Economics Papers 9924, Economics Group, Nuffield College, University of Oxford.
  3. Sonia R. Bhalotra, 2000. "Investigating Rationality in Wage-Setting," Econometric Society World Congress 2000 Contributed Papers 1759, Econometric Society.
  4. Kevin Denny, 1997. "Productivity and trade unions in British manufacturing industry 1973-85," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1403-1409.
  5. Haskel, Jonathan & Sanchis, Amparo, 1998. "A Bargaining Model of Farrell Inefficiency," CEPR Discussion Papers 1902, C.E.P.R. Discussion Papers.
  6. G Cameron, 1996. "Innovation and Economic Growth," CEP Discussion Papers dp0277, Centre for Economic Performance, LSE.
  7. Disney, Richard F & Haskel, Jonathan & Heden, Ylva, 2000. "Restructuring And Productivity Growth In UK Manufacturing," CEPR Discussion Papers 2463, C.E.P.R. Discussion Papers.
  8. Bhalotra, Sonia R., 1998. "Changes in utilization and productivity in a deregulating economy," Journal of Development Economics, Elsevier, vol. 57(2), pages 391-420.
  9. Stephen Nickell & D. Nicolitsas, 1994. "Wages," LSE Research Online Documents on Economics 51644, London School of Economics and Political Science, LSE Library.
  10. Stephen Nickell & D. Nicolitsas, 1994. "Wages, effort and productivity," LSE Research Online Documents on Economics 20794, London School of Economics and Political Science, LSE Library.
  11. Barot, Bharat, 2002. "Growth and Business Cycles for the Swedish Economy 1963-1999," Working Paper 79, National Institute of Economic Research.

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