Do Real Output and Real Wage Measures Capture Reality? The History of Lighting Suggests Not
AbstractHistorical studies of the growth in real wages and output depend upon the accurate measure of the price trends of goods and services. Over long periods of time, the consumption bundle has changed profoundly, and most of today's consumption includes items that were not produced, and in some cases not even conceived, at the beginning of the nineteenth century. This paper tackles the issue of the quantitative significance of the qualitative change in consumption by choosing a single service -- lighting -- for which the service characteristic -- illumination -- is invariant. We estimate changes in lighting efficiency and construct a "true" price index back to Babylonian times, with the major emphasis on changes over the last two centuries. A comparison of the true price of light with a traditional light price indicates that traditional price indexes overstate price growth, and therefore understate output growth, by a factor between 900 and 1,600 since the beginning of the nineteenth century. This finding suggests that the "true" growth of real wages and real output may have been significantly understated during the period since the Industrial Revolution.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1078.
Length: 55 pages
Date of creation: Sep 1994
Date of revision:
Publication status: Published in Timothy F. Bresnahan and Robert J. Gordon, eds., The Economics of New Goods, Vol. 58, 1997, pp. 29-66
Note: CFP 957.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Other versions of this item:
- William D. Nordhaus, 1996. "Do Real-Output and Real-Wage Measures Capture Reality? The History of Lighting Suggests Not," NBER Chapters, in: The Economics of New Goods, pages 27-70 National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, July.
- W. Erwin Diewert, 1988. "The Early History of Price Index Research," NBER Working Papers 2713, National Bureau of Economic Research, Inc.
- Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557, January.
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- Jonathan Hersh & Joachim Voth, 2009. "Sweet diversity: Colonial goods and the rise of European living standards after 1492," Economics Working Papers 1163, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2011.
- Roger Fouquet & Peter J.G. Pearson, 2012.
"The Long Run Demand for Lighting:Elasticities and Rebound Effects in Different Phases of Economic Development,"
Economics of Energy & Environmental Policy,
International Association for Energy Economics, vol. 0(Number 1).
- Roger Fouquet & Peter J.G Pearson, 2011. "The Long Run Demand for Lighting: Elasticities and Rebound Effects in Different Phases of Economic Development," Working Papers 2011-06, BC3.
- Warr, Benjamin & Ayres, Robert, 2006. "REXS: A forecasting model for assessing the impact of natural resource consumption and technological change on economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 17(3), pages 329-378, September.
- W. Michael Cox & Roy J. Ruffin, 1998. "What should economists measure? The implications of mass production vs. mass customization," Working Papers 9803, Federal Reserve Bank of Dallas.
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