IDEAS home Printed from
   My bibliography  Save this paper

The Changing Role of Capital in the U.S. Private Business Sector: Evidence for a "New Economy"


  • Gordon C. Bjork

    (Claremont McKenna College)


Economists differ in their explanation of changes in the rate of U.S.economic growth in the latter half of the 20th century-particularly for the "new economy" period from 1982-2000. Adherents of the Neoclassical Growth Model have emphasized that with the increase in the capital/labor ratio the aggregate production function would be subject to diminishing returns so that economies would asymptotically approach a steady state in terms of output per worker and output per unit of capital. Endogenous Growth theorists have emphasized upward shifts in production functions offsetting diminishing returns. Both theories have neglected to incorporate into their growth models the effects of systematic shifts in the composition of output that accompany economic growth. The paper analyzes the Private Business Sector (exclusion of Government, Residential Housing, and Not For Profit), uses a more restrictive measure of output, Net National Income, rather than Gross Domestic Product and a more general measure of labor input, Persons Engaged in Production, rather than Full Time Equivalent Employment or labor hours in analysis. Using BEA data sets for the stock of physical capital and gross product originating by SIC sector and industry, the paper demonstrates that about half the increase in labor and capital productivity in the new economy has been the result of endogenous growth within sectors and industries and the other half is attributable to shifts in the composition of output away from more physical capital-intensive industries to more labor-intensive industries. After falling steadily from 1966 to 1982, both the nominal output/capital (Y/C) and real output/capital ((Q/K) ratios rise steadily from 1982 to 2000. Growth in the real capital/labor (K/N) ratio slows during this period so that in marked contrast to earlier periods, half of the growth in real output per worker (Q/N) is attributable to increases in capital productivity. Increase in the Y/C ratio is shown, by counterfactual analysis, to depend partly on the shift of output from more to less capital intensive industries. The paper also demonstrates that half of the change in the nominal Y/C ratio is due to “real” rather than relative price changes and that changes in capacity utilization over the business cycle explain only a negligible part of the increase.

Suggested Citation

  • Gordon C. Bjork, "undated". "The Changing Role of Capital in the U.S. Private Business Sector: Evidence for a "New Economy"," Claremont Colleges Working Papers 2002-37, Claremont Colleges.
  • Handle: RePEc:clm:clmeco:2002-37

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:clm:clmeco:2002-37. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.