Working Paper: NBER ID: w16010
Authors: Charles R. Hulten; Paul Schreyer
Abstract: We show how technical change, measured as a shift in the GDP function, is combined with net income to track welfare change. This provides a bridge between the productivity literature and the welfare-related literature that tends to reason in terms of net product functions: although the relevant income measure is net of depreciation, productivity is measured based on gross output. We show that net product, net income, net expenditure and productivity change are complements, not substitutes. We also examine whether holding gains and losses should be part of depreciation and conclude that in a general equilibrium setting, either productivity change or holding gains should be part of an extended Weitzman-type net income measure, but not both.
Keywords: Technical Change; Welfare; Net Income; GDP
JEL Codes: E01; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technical Change (O00) | Welfare Change (I38) |
| Technical Change (O00) | Net Income (H24) |
| Net Income (H24) | Welfare Change (I38) |
| Technical Change (O00) | Net Product (G19) |
| Net Product (G19) | Welfare Change (I38) |
| Expected Holding Gains and Losses (G17) | Net Income (H24) |
| Technical Change + Expected Holding Gains and Losses (O00) | Welfare Change (I38) |