Shifts and movements along the aggregate production function

Robert Solow’s Paper “Technical Change and the Aggregate Production Function” details a method of distinguishing shifts of the aggregate production function from movements along it. The aggregate production function describes output as a product of labor, capital, natural resources, and other inputs. Solow returns to the function to discuss how to segregate changes in output per head due to technical changes from those caused by variations in the availability of capital per head.

After explaining his method, he uses it to analyze the US from 1909 to 1949. The result is an average increase of 1.5% in output per year over the period, and found that at the end of the forty years output per man hour had approximately doubled. While his analysis was fairly “crude,” he found that on average technical change in this period was average and that the rate at which output increased grew from 1% on average during the first two decades to 2% during the last two. In addition, when the aggregate production function is corrected for these technical changes, diminishing returns are evident.

3 comments to Shifts and movements along the aggregate production function

  • SO: over the long haul, what drove (drives? will drive?) US growth? Jacob has outlined the core results, let’s make sure we rephrase those results into terms relevant for today.

    TFP: make sure you know what it is and how it is measured!

  • nurissog16

    Solow notes that roughly 87.5% of the increase in gross output per man hour is due to technical change and the remaining 12.5% to increased use of capital.

  • Jier Qiu

    I like the idea of the model’s focus on innovation/technology. However, I think the paper somehow overlooks the importance of capital investment. Is it possible to bring new innovations into production without capital investment? When people are making empirical measurements of the role played by capital, should the assumption that technical progress is embedded into machines and other capital goods be considered?

Germane comments welcome! ā€“ others treated as spam.