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Do Real Output and Real Wage Measures Capture Reality? The History of Lighting Suggests Not

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Abstract

Historical 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 Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1078.

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Length: 55 pages
Date of creation: Sep 1994
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Publication status: Published in Timothy F. Bresnahan and Robert J. Gordon, eds., The Economics of New Goods, Vol. 58, 1997, pp. 29-66
Handle: RePEc:cwl:cwldpp:1078

Note: CFP 957.
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  1. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, July.
  2. W. Erwin Diewert, 1988. "The Early History of Price Index Research," NBER Working Papers 2713, National Bureau of Economic Research, Inc.
  3. 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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  1. L’énergie renouvelable doit-elle être gratuite ?
    by ? in InternetActu.net on 2011-01-20 06:01:48
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Cited by:
  1. Ayres, Robert U., 2007. "On the practical limits to substitution," Ecological Economics, Elsevier, vol. 61(1), pages 115-128, February.
  2. Roger Fouquet, 2012. "Economics of Energy and Climate Change: Origins, Developments and Growth," Working Papers 2012-08, BC3.
  3. Roger Fouquet, 2013. "Long Run Demand for Energy Services: the Role of Economic and Technological Development," Working Papers 2013-03, BC3.
  4. W. Erwin Diewert, 1995. "Price and Volume Measures in the System of National Accounts," NBER Working Papers 5103, National Bureau of Economic Research, Inc.
  5. Lundgren, Nils-Gustav, 1996. "Bulk trade and maritime transport costs : The evolution of global markets," Resources Policy, Elsevier, vol. 22(1-2), pages 5-32.
  6. Hersh, Jonathan & Voth, Hans-Joachim, 2009. "Sweet Diversity: Colonial Goods and the Rise of European Living Standards after 1492," CEPR Discussion Papers 7386, C.E.P.R. Discussion Papers.
  7. 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).
  8. 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.
  9. 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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