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.:
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