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Do Real Output and Real Wage Measures Capture Reality? The History of Lighting Suggests Not

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Abstract

Historical studies of the growth in real wages and output depend upon the accurate measure of the price trends of goods and services. Over long periods of time, the consumption bundle has changed profoundly, and most of today's consumption includes items that were not produced, and in some cases not even conceived, at the beginning of the nineteenth century. This paper tackles the issue of the quantitative significance of the qualitative change in consumption by choosing a single service -- lighting -- for which the service characteristic -- illumination -- is invariant. We estimate changes in lighting efficiency and construct a "true" price index back to Babylonian times, with the major emphasis on changes over the last two centuries. A comparison of the true price of light with a traditional light price indicates that traditional price indexes overstate price growth, and therefore understate output growth, by a factor between 900 and 1,600 since the beginning of the nineteenth century. This finding suggests that the "true" growth of real wages and real output may have been significantly understated during the period since the Industrial Revolution.

Suggested Citation

  • William D. Nordhaus, 1994. "Do Real Output and Real Wage Measures Capture Reality? The History of Lighting Suggests Not," Cowles Foundation Discussion Papers 1078, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:1078
    Note: CFP 957.
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    File URL: http://cowles.yale.edu/sites/default/files/files/pub/d10/d1078.pdf
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    1. repec:ucp:bknber:9780226304557 is not listed on IDEAS
    2. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, January.
    3. W. Erwin Diewert, 1988. "The Early History of Price Index Research," NBER Working Papers 2713, National Bureau of Economic Research, Inc.
    4. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, March.
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    1. L’énergie renouvelable doit-elle être gratuite ?
      by ? in InternetActu.net on 2011-01-20 12:01:48

    Citations

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    Cited by:

    1. Roger Fouquet & Peter J.G. Pearson, 2012. "The Long Run Demand for Lighting:Elasticities and Rebound Effects in Different Phases of Economic Development," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    2. Raul Jimenez & Ariel Yépez-García, 2016. "Composition and Sensitivity of Residential Energy Consumption," IDB Publications (Working Papers) 95257, Inter-American Development Bank.
    3. Roger Fouquet, 2012. "Economics of Energy and Climate Change: Origins, Developments and Growth," Working Papers 2012-08, BC3.
    4. W. Erwin Diewert, 1995. "Price and Volume Measures in the System of National Accounts," NBER Working Papers 5103, National Bureau of Economic Research, Inc.
    5. Warr, Benjamin & Ayres, Robert, 2006. "REXS: A forecasting model for assessing the impact of natural resource consumption and technological change on economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 17(3), pages 329-378, September.
    6. repec:ebl:ecbull:eb-17-00365 is not listed on IDEAS
    7. Hasan Bakhshi & Andrew Haldane & Neal Hatch, 1998. "Some costs and benefits of price stability in the UK," Bank of England working papers 78, Bank of England.
    8. Fouquet, Roger, 2014. "Long run demand for energy services: income and price elasticities over two hundred years," LSE Research Online Documents on Economics 59070, London School of Economics and Political Science, LSE Library.
    9. Lundgren, Nils-Gustav, 1996. "Bulk trade and maritime transport costs : The evolution of global markets," Resources Policy, Elsevier, vol. 22(1-2), pages 5-32.
    10. Fouquet, Roger, 2016. "Lessons from energy history for climate policy: technological change, demand and economic development," LSE Research Online Documents on Economics 67785, London School of Economics and Political Science, LSE Library.
    11. Jonathan Hersh & Joachim Voth, 2009. "Sweet diversity: Colonial goods and the rise of European living standards after 1492," Economics Working Papers 1163, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2011.
    12. Eamon Duede & Victor Zhorin, 2016. "Convergence of Economic Growth and the Great Recession as Seen From a Celestial Observatory," Papers 1604.04312, arXiv.org, revised Aug 2016.
    13. W. Michael Cox & Roy J. Ruffin, 1998. "What should economists measure? The implications of mass production vs. mass customization," Working Papers 9803, Federal Reserve Bank of Dallas.
    14. Ayres, Robert U., 2007. "On the practical limits to substitution," Ecological Economics, Elsevier, vol. 61(1), pages 115-128, February.
    15. Ayres, Robert U & Ayres, Leslie W & Warr, Benjamin, 2003. "Exergy, power and work in the US economy, 1900–1998," Energy, Elsevier, vol. 28(3), pages 219-273.
    16. Rühl, Christof & Appleby, Paul & Fennema, Julian & Naumov, Alexander & Schaffer, Mark, 2012. "Economic development and the demand for energy: A historical perspective on the next 20 years," Energy Policy, Elsevier, vol. 50(C), pages 109-116.
    17. Jedwab, Remi & Vollrath, Dietrich, 2015. "Urbanization without growth in historical perspective," Explorations in Economic History, Elsevier, vol. 58(C), pages 1-21.
    18. Roger Fouquet, 2013. "Long Run Demand for Energy Services: the Role of Economic and Technological Development," Working Papers 2013-03, BC3.
    19. Asger Moll Wingender, 2014. "Structural transformation in the 20th century: A new database on agricultural employment around the world," Discussion Papers 14-28, University of Copenhagen. Department of Economics.
    20. Lindgren, Mattias, 2015. "The elusive quest for the subsistence line How much does the cost of survival vary between populations?," MPRA Paper 73891, University Library of Munich, Germany.
    21. repec:eee:enepol:v:109:y:2017:i:c:p:545-554 is not listed on IDEAS
    22. Sanderson, Susan Walsh & Simons, Kenneth L., 2014. "Light emitting diodes and the lighting revolution: The emergence of a solid-state lighting industry," Research Policy, Elsevier, vol. 43(10), pages 1730-1746.

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