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Early Twentieth Century Productivity Growth Dynamics: An Inquiry into the Economic History of "Our Ignorance"

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Author Info
Paul A. David () (All Souls College, Oxford)
Gavin Wright () (Stanford University)

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Abstract

A marked acceleration of total factor productivity (TFP) growth in U.S. manufacturing followed World War I. This development contributed substantially to the absolute and relative rise of the domestic economy's aggregate TFP residual, which is observed when the "growth accounts" for the first quarter of the twentieth century are compared with those for the second half of the nineteenth century. Two visions of the dynamics of productivity growth are germane to an understanding of these developments. One emphasizes the role of forces affecting broad sections of the economy, through spillovers of knowledge and the diffusion of general purpose technologies (GPTs). The second view considers that possible sources of productivity increase are multiple and idiosyncratic. Setting aside possible measurement errors, the latter approach regards sectoral and economy-wide surges of TFP growth to be simply the result of aggregating over many essentially independent underlying cost reductions, some of which carried more weight than others. Although there is room for both views in an analysis of the sources of the industrial TFP acceleration during the 1920's, we find the evidence more compelling in support of the first approach. The proximate source of the TFP surge lay in the switch from declining or stable capital productivity to a rising output-capital ratio, which occurred at this time in many branches of manufacturing, and which was not accompanied by slowed growth in labor productivity. The 1920's saw critical advances in the electrification of industry, the diffusion of a GPT that brought significant fixed capital-savings. But the same era also witnessed profound transformations in the American industrial labor market, following the stoppage of mass immigration from Europe; rising real wages provided strong impetus to changes in workforce recruitment and management practices that were underway in some branches of the economy before the War. The productivity surge reflected the confluence of these two forces.

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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Oxford University Economic and Social History Series with number _033.

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Length: 46 pages
Date of creation: 01 Oct 1999
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Handle: RePEc:nuf:esohwp:_033

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Web page: http://www.nuff.ox.ac.uk/economics/

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References listed on IDEAS
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  1. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
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  2. Harberger, Arnold C, 1998. "A Vision of the Growth Process," American Economic Review, American Economic Association, vol. 88(1), pages 1-32, March.
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  1. S. Solomou & C. A. Ristuccia, 2002. "British Episodic Economic Growth 1850-1938," Cambridge Working Papers in Economics 0208, Faculty of Economics, University of Cambridge. [Downloadable!]
  2. Andreas Reinstaller & Werner Hölzl, 2001. "The creative response in economic development: the case of information processing technologies in US manufacturing, 1870-1930," Working Papers geewp15, Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness. [Downloadable!]
  3. Robert J. Gordon, 2004. "Five Puzzles in the Behavior of Productivity, Investment, and Innovation," NBER Working Papers 10660, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Ristuccia , C.A. & Solomou, S., 2002. "Electricity Diffusion and Trend Acceleration in Inter-War Manufacturing Productivity," Cambridge Working Papers in Economics 0202, Faculty of Economics, University of Cambridge. [Downloadable!]
  5. Michele Boldrin & David K Levine, 2007. "All the Interesting Questions, Almost All the Wrong Reasons," Levine's Working Paper Archive 784828000000000706, David K. Levine. [Downloadable!]
  6. Robert J. Gordon, 2004. "Two Centuries of Economic Growth: Europe Chasing the American Frontier," NBER Working Papers 10662, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Castaldi, C. & Nuvolari, A., 2003. "Technological Revolutions and Economic Growth:The “Age of Steam” Reconsidered," ECIS Working Papers 03.25, Eindhoven Centre for Innovation Studies, Eindhoven University of Technology. [Downloadable!]
    Other versions:
  8. Jukka Jalava & Ilja Kristian Kavonius, 2008. "The effect of durable goods and ICT on euro area productivity growth?," Working Paper Series 940, European Central Bank. [Downloadable!]
  9. Paul A. David, 2005. "Productivity growth prospects and the new economy in historical perspective," Economic History 0502005, EconWPA. [Downloadable!]
  10. Henrekson, Magnus & Edquist, Harald, 2006. "Technological Breakthroughs and Productivity Growth," Working Paper Series 665, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  11. Crafts, Nicholas, 2002. "The Solow Productivity Paradox in Historical Perspective," CEPR Discussion Papers 3142, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Mauro Napoletano & Andrea Roventini & Sandro Sapio, 2004. "Yeast vs. Mushrooms: A Note on Harberger's "A Vision of the Growth Process"," LEM Papers Series 2004/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  13. Paul A. David & Gavin Wright, 2005. "General Purpose Technologies and Productivity Surges: Historical Reflections on the Future of the ICT Revolution," Economic History 0502002, EconWPA. [Downloadable!]
  14. George Speight, 2000. "Who Bought the Inter-War Semi? The Socio-Economic Characteristics of New-House Buyers in the 1930s," Oxford University Economic and Social History Series _038, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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