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Aggregate Production Functions and Productivity Measurement: A New Look

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  • Muellbauer, John

Abstract

Many economists currently take a somewhat jaundiced view of the estimation of aggregate production functions. Three problems seem particularly troublesome; the unobservables problem, especially with regard to utilization, the aggregation problem and the simultaneous equation problems. This paper presents theoretical arguments and empirical evidence from British manufacturing for the view that the first of these is the most serious with important dimensions in the measurement of capital and output as well as that of utilization. New light is shed on two classic questions. One was first raised by Feldstein (1967) who observed in a cross-section context that the elasticity of output w. r. t. average observed hours of work significantly exceeded the elasticity w. r. t. employment. Craine (1973) observed a similar result for time-series data. The other question is one with which most researchers on productivity have struggled: how to correct productivity for cyclical variations in the utlization of inputs. A novel answer based on the use of overtime hours data is found to give excellent empirical results.

Suggested Citation

  • Muellbauer, John, 1984. "Aggregate Production Functions and Productivity Measurement: A New Look," CEPR Discussion Papers 34, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:34
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    Cited by:

    1. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Restructuring and productivity growth in uk manufacturing," Economic Journal, Royal Economic Society, vol. 113(489), pages 666-694, July.
    2. Barot, Bharat, 2002. "Growth and Business Cycles for the Swedish Economy 1963-1999," Working Papers 79, National Institute of Economic Research.
    3. Kevin Denny, 1997. "Productivity and trade unions in British manufacturing industry 1973-85," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1403-1409.
    4. Stephen Nickell & D Nicolitsas, 1994. "Wages," CEP Discussion Papers dp0219, Centre for Economic Performance, LSE.
    5. Gavin Cameron, 2003. "Why Did UK Manufacturing Productivity Growth Slow Down in the 1970s and Speed Up in the 1980s?," Economica, London School of Economics and Political Science, vol. 70(277), pages 121-141, February.

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