Working Paper: NBER ID: w0895
Authors: Ernst R. Berndt; Melvyn A. Fuss
Abstract: Although a great deal of empirical research on productivity measuremant has taken place in the last decade, one issue remaining particudarly controversial and deaisive is the manner by which one adjusts the productivity residual for variations in capital and capacity utilization. In this paper we use the Marshallian framework of a short run production or cost function with certain inputs quasi-fixed to provide a theoretical basis for accounting for variations in utilization. The theoretical model implies that the value of services from stocks of quasi-fixed inputs should be altered rather than their quantity. This represents a departure from most previous procedures that have adjusted the quantity of capital services for variations in utilization. In the empirical illustration, we employ Tobin's q to measure the shadow value of capital, and find that for the U.S. manufacturing sector, we can attribute about 50% of the traditionally measured decline in productivity growth during 1973-77 to a decline in capacity utilization. Hence, adjusted for utilization, the 1973-77 productivity slowdown in U.S. manufacturing is considerably less than that measured using traditional productivity accounting techniques.
Keywords: Productivity; Capital Asset Valuation; Utilization Variations
JEL Codes: O47; D24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Adjustments for variations in capital and capacity utilization (E22) | Productivity measurements (D20) |
| Decline in capacity utilization (D24) | Decline in productivity growth from 1973 to 1977 (O49) |
| Adjustments for utilization (L97) | Productivity slowdown in U.S. manufacturing (L69) |
| Adjusting the value of capital services (D24) | Reflecting productivity changes accurately (O49) |