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Productivity Measurement Using Capital Asset Valuation to Adjust for Variations in Utilization

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  • Ernst R. Berndt
  • Melvyn A. Fuss
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    Abstract

    Although a great deal of empirical research on productivity measuremant has taken place in the last decade, one issue remaining particudarly controversial and deaisive is the manner by which one adjusts the productivity residual for variations in capital and capacity utilization. In this paper we use the Marshallian framework of a short run production or cost function with certain inputs quasi-fixed to provide a theoretical basis for accounting for variations in utilization. The theoretical model implies that the value of services from stocks of quasi-fixed inputs should be altered rather than their quantity. This represents a departure from most previous procedures that have adjusted the quantity of capital services for variations in utilization. In the empirical illustration, we employ Tobin's q to measure the shadow value of capital, and find that for the U.S. manufacturing sector, we can attribute about 50% of the traditionally measured decline in productivity growth during 1973-77 to a decline in capacity utilization. Hence, adjusted for utilization, the 1973-77 productivity slowdown in U.S. manufacturing is considerably less than that measured using traditional productivity accounting techniques.

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    File URL: http://www.nber.org/papers/w0895.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0895.

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    Date of creation: May 1982
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    Publication status: published as Berndt, Ernst R. and Melvyn A. Fuss. "Productivity Measurement Using Capital Asset Valuation to Adjust for Variations in Utilization." Journal of Econometrics, November 1986.
    Handle: RePEc:nbr:nberwo:0895

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    1. George J. Stigler, 1947. "Introduction to "Trends in Output and Employment"," NBER Chapters, in: Trends in Output and Employment, pages 1-2 National Bureau of Economic Research, Inc.
    2. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    3. Holland, Daniel M & Myers, Stewart C, 1980. "Profitability and Capital Costs for Manufacturing Corporations and All Nonfinancial Corporations," American Economic Review, American Economic Association, vol. 70(2), pages 320-25, May.
    4. George J. Stigler, 1947. "Trends in Output and Employment," NBER Books, National Bureau of Economic Research, Inc, number stig47-1, October.
    5. John W. Kendrick, 1973. "Postwar Productivity Trends in the United States, 1948-1969," NBER Books, National Bureau of Economic Research, Inc, number kend73-1, October.
    6. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August.
    7. Moses Abramovitz, 1956. "Resource and Output Trends in the United States Since 1870," NBER Books, National Bureau of Economic Research, Inc, number abra56-1, October.
    8. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
    9. Thor Hultgren, 1960. "Changes in Labor Cost During Cycles in Production and Business," NBER Books, National Bureau of Economic Research, Inc, number hult60-1, October.
    10. Moses Abramovitz, 1956. "Resource and Output Trends in the United States Since 1870," NBER Chapters, in: Resource and Output Trends in the United States Since 1870, pages 1-23 National Bureau of Economic Research, Inc.
    11. Thor Hultgren, 1960. "Appendices to "Changes in Labor Cost During Cycles in Production and Business"," NBER Chapters, in: Changes in Labor Cost During Cycles in Production and Business, pages 79-85 National Bureau of Economic Research, Inc.
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    Cited by:
    1. Shah, Anwar, 1988. "Public infrastructure and private sector profitability and productivity in Mexico," Policy Research Working Paper Series 100, The World Bank.
    2. Peter J. Elmer & Patric H. Hendershott, 1984. "Relative Factor Price Changes and Equity Prices," NBER Working Papers 1449, National Bureau of Economic Research, Inc.
    3. John F. Helliwell & Alan Chung, 1985. "Aggregate Output with Operating Rates and Inventories as Buffers BetweenVariable Final Demand and Quasi-Fixed Factors," NBER Working Papers 1623, National Bureau of Economic Research, Inc.
    4. Melvyn A. Fuss & Leonard Waverman, 1985. "Productivity Growth in the Automobile Industry, 1970-1980: A Comparisonof Canada, Japan and the United States," NBER Working Papers 1735, National Bureau of Economic Research, Inc.
    5. Arnab Deb, 2013. "Economic Reforms, Capacity Utilization, and Productivity Growth in Indian Manufacturing," Alumni working papers 2013-05, University of Connecticut, Department of Economics.

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