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Accounting for Productivity Growth When Technical Change is Biased

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Author Info
James Bessen () (Research on Innovation, Boston University School of Law)

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Abstract

Solow (1957) decomposed labor productivity growth into two components that are independent under Hicks neutrality: input growth and the residual, representing technical change. However, when technical change is Hicks biased, input growth is no longer independent of technical change, leading to ambiguous interpretation. Using Solow’s model, I decompose output per worker into globally independent sources. Adding a simple calculation to Solow’s framework, I show that technical bias directly contributes to labor productivity growth above what is captured in the Solow residual. This contribution is sometimes large, leading to rates of total technical change that substantially exceed the Solow residual.

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Paper provided by Research on Innovation in its series Working Papers with number 0802.

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Date of creation: 2008
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Handle: RePEc:roi:wpaper:0802

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  1. James Bessen, 2008. "More Machines or Better Machines?," Working Papers 0803, Research on Innovation. [Downloadable!]
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