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Gerben Bakker, Nicholas Crafts and Pieter Woltjer

A Vision of the Growth Process in a Technologically Progressive Economy: the United States, 1899-1941. Gerben Bakker, Nicholas Crafts and Pieter Woltjer. Introduction. This paper seeks to improve on existing work that measures TFP growth at a disaggregated level

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Gerben Bakker, Nicholas Crafts and Pieter Woltjer

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  1. A Vision of the Growth Process in a Technologically Progressive Economy: the United States, 1899-1941 Gerben Bakker, Nicholas Crafts and Pieter Woltjer

  2. Introduction • This paper seeks to improve on existing work that measures TFP growth at a disaggregated level • It covers more sectors in detail and accounts more fully for growth of labor quality than earlier estimates • It provides an account of intensive growth contributions (IGC) by sector using value-added weights

  3. Questions • We use the estimates to address the following questions: • Was the 1930s the ‘most technologically progressive decade’ of the 20th Century? • Does the growth of TFP look like ‘yeast’ or ‘mushrooms’? • What was the impact of electricity as a GPT on TFP growth in 1920s’ American manufacturing?

  4. Context • 2nd Industrial Revolution • Strong TFP growth (Solow, 1957; Kendrick, 1961; Abramovitz & David, 2001) • The start of ‘one big wave’ (Gordon, 2000) • The ‘most technologically progressive decade’ (Field, 2003)

  5. Table 1. Contributions to Labor Productivity Growth in the United States(% per year) Notes: ‘refined TFP’ corrects ‘crude TFP for labor quality Source: derived from Field (2011, Table 2.1); post-1948 from the BLS website.

  6. Kendrick (1961) • Is the starting point but is not wholly adequate to address the issues raised by Harberger (1998) and Field (2003) • Estimates for total PDE, specific sectors = about 55%PDE, and residual 45% • 1930s ends in 1937 • Accounts only partly for labor quality – does not include within-occupation improvements

  7. Going Beyond Kendrick • We calculate the value-added shares of each sector (Appendix A) • We add 5 more sectors - construction, distribution, FIRE, post office, spectator entertainment – to increase coverage to 80% PDE (Appendix B) • We extend the sectoral analysis to 1941 (Appendix C) • We construct an estimate of labour inputs taking account of age, gender, and education within each industry (Appendix D)

  8. Labor Quality • Important to take account of increased schooling within occupations (cf. Goldin & Katz, 2008) • We find labor quality grew at 0.8% per year in PDE during 1899-1941 compared with 0.3% according to Kendrick • Most of this difference comes from rising educational attainment • So TFP growth is lower: 1.35% instead of 1.7%

  9. Index of Labor Input for an Industry • Labor input is based on employment classified by age, gender, and education ΔHK/HK = ∑vlΔLl/Ll where Ll is employment for a given set of characteristics and vl is that group’s share of labor income in the industry ΔLQ/LQ = ∑vlΔLl/Ll – ΔL/L

  10. Data for Labor Quality • Estimate educational attainment for workers for the pre-1940 years using 1940 census returns • Construct an employment matrix for the entire period that groups workers according to (predicted) education, age, gender • Derive compensation matrix on basis of average wages for each category in 1940 • Robustness check: repeat exercise using Iowa wage data for 1915 in step 3

  11. Labor Quality Growth • Exhibited significant variation between sectors and over time (Table 3) • Was not highly correlated with TFP growth at the sectoral level • Several sectors had negative growth of labor quality in 1899-1909 as their workforces became younger and more female

  12. Growth Accounting • We use standard neoclassical assumptions but adjust for quality of labor inputs Δ(Y/L)/(Y/L) = αΔ(K/L)/(K/L) + βΔ(HK/L)/(HK/L) + ΔA/A where α is the share of profits and β is the share of wages

  13. TFP Estimates for New Sectors, 1899-1929 (Appendix B) • Construction and Wholesale & Retail Trade:crude TFP growth proxied by labor productivity growth from Kendrick (1961) • FIRE:output index based on financial intermediation (0.33) from Philippon (2014), life insurance (0.33) policies from Carter et al. (2006), rents (0.33) based on Lebergott (1996);labor force (0.5) from Kendrick (1961), capital stock (0.5) from Goldsmith (1958)

  14. TFP Estimates for 1929-1941 (Appendix C) • Nominal output and employment from NIPA • Prices from BLS, Historical Statistics, NIPA • Hours of work from Kendrick (1961) supplemented by HSUS • Capital input based on a PIM using investment data in BEA, Fixed Asset Tables with starting assets in 1901 based on BEA, Fixed Reproducible Tangible Wealth

  15. (Refined) TFP Growth (% per year): New Estimates (Table 4)

  16. A Revised View of TFP Growth Over Time • Table 7 displays estimates of TFP growth for the PDE through the 20th century • The pre-1941 numbers embody our correction for labor quality growth which makes them more comparable to the later BLS estimates • TFP growth in the 1930s is lower than in 1958-1973

  17. Table 7. TFP Growth in the Private Domestic Economy, 1899-2007 (% per year) Sources: Table 5 and Bureau of Labor Statistics, “Historical Multifactor Productivity Measures”, http://www.bls.gov/mfp/home.htm (October 2014)

  18. Intensive Growth Contributions, 1899-1941 (Table 5) • Top 3 sectors are wholesale & retail trade, railroads, and foods • Manufacturing contributed 45% of all TFP growth • Gordon’s ‘one big wave’ technologies (10 sectors representing 4 clusters, fn.8) contributed 42% of all TFP growth; their IGC rose from 0.3% per year in 1899-1909 to 0.76% in 1929-41

  19. The 1930s Compared with the 1920s • Field (2011) emphasized that IGCs were broadly based in the 1930s whereas manufacturing dominated in the 1920s • We re-worked Field’s decomposition in Table 8 and we agree (Appendix C) • However, we think the contrast between the 2 periods is bigger; manufacturing accounted for 85.6% of TFP growth in the1920s compared with 32.1% in the 1930s

  20. Table 8. Decomposition of TFP Growth in the PNE, 1919-1929 Sources: Field (2011, Tables 2.5 and 2.10); derived from Tables 4 and 5.

  21. Table 8. Decomposition of TFP Growth in the PNE, 1929-1941 Sources: Field (2011, Tables 2.5 and 2.10); derived from Tables 4 and 5.

  22. Harberger Curves(Harberger, 1998) • Rank sectors by TFP growth, plot cumulative IGC vs. cumulative VA share • Harberger Coefficient is area under curve and above diagonal divided by total area under curve; ‘yeast’ has low H and ‘mushrooms’ has high H • Harberger (1998) thought growth process usually ‘mushroomy’ looking at short periods after the ‘one big wave’

  23. Harberger Curve: Yeast - 23 -

  24. Harberger Curve: Mushrooms - 24 -

  25. GPTs and Harberger Curves • GPT might be expected to have pervasive effect on labor productivity growth through GPT capital-deepening effect • Own TFP growth for the GPT will be sectorally concentrated and will not of itself deliver a ‘yeasty’ Harberger Curve • However, if the GPT also has widespread TFP spillovers, as David (1991) suggested for electricity in 1920s’ U.S. manufacturing, this could deliver a yeast-like growth process with a low H

  26. Mushrooms or Yeast?: PDE • Most periods are quite yeasty: H = 0.37 in 1899-1909, 0.33 in 1919-29 and 0.35 in 1929-41; IGCs broadly based in both1920s and 1930s • These numbers are smaller than in OECD economies recently; Inklaar and Timmer (2007) report H =0.49 to 0.76 in 1987-95 and 0.40 to 0.76 for 1995-2004 • H is 0.71 in 1909-19 when TFP growth is negative in many sectors .. is this period affected by the war?

  27. Mushrooms or Yeast?: Manufacturing • Similar picture: H is quite low except for 1919-29 • H = 0.34 in 1899-1909, 0.72 in 1909-19, 0.18 in 1919-29 and 0.30 in 1929-41 • Again not what Harberger expected • Is this the impact of electricity as a GPT with TFP spillovers?

  28. Electricity in 1920s’ Factories • The shift from drive-shafts to wires (Devine, 1983) • Adoption of unit drive as HP in secondary motors grew very rapidly • David (1991) and David & Wright (1999) found acceleration of TFP growth at the industry level correlated with growth of this HP • Improved design of factories, improved materials handling, saved capital

  29. David & Wright (1999) Revisited • With our new estimates of TFP growth we still obtain the basic correlation between secondary motors HP growth and the change in TFP growth but with a lower magnitude • Effect for manufacturing as whole in the 1920s is 6.2*0.2 = 1.25 percentage points • No TFP-spillovers effect in the 1930s • Does this explain the very ‘yeasty’ Harberger curve for 1920s’ manufacturing?

  30. Table 9. TFP Spillover Regressions for a Cross-Section of Manufacturing Industries. Notes: The dependent variables are (TFP growth 1919-29 – TFP growth 1899-19) and (TFP growth 1929-41 – TFP growth 1919-29) derived from Table 4; the independent variables are the average annual rates of growth of horsepower in secondary motors in 1919-29 and 1929-39 from DuBoff (1979).

  31. Growth Accounting with Electricity • Augment standard formula to allow 2 types of capital, own TFP growth in 2 sectors, and TFP spillovers Δ(Y/L)/(Y/L) = α1Δ(KO/L)/(KO/L) + α2Δ(KE/L)/(KE/L) + βΔ(HK/L)/(HK/L) + ηΔAO/AO + ϕΔAE/AE + γΔ(KE/L)/(KE/L) The final 3 terms are each part of TFP growth and the last one is TFP spillovers from electrical capital deepening

  32. Implementing This Method at the Industry Level (Appendix C) • Rate of growth of horsepower in electric motors (DuBoff, 1979) is rate of growth of electrical capital • Assume share of total profits accruing to electrical capital equals share of electrical capital in total capital using NIPA and investment by asset type for 1921-29 from BEA • Take electrical capital to be the sum of E160 (electrical transmissions, distribution and industrial apparatus) and E070 (electrical equipment nec)

  33. - 35 -

  34. Accounting for Electricity • Electricity accounts for about 28 per cent of TFP growth and 24 per cent of labor productivity growth in manufacturing in the 1920s • Electrical TFP growth (based on spillovers and own TFP growth in electrical machinery) varies more than non-electrical TFP growth • Overall yeastiness of manufacturing productivity growth may not primarily reflect the impact of electricity as a GPT

  35. Table 11. Harberger Coefficients for Contributions to Productivity Growth in the Manufacturing Sector, 1919-29.

  36. Conclusions • The 1930s did not see the fastest TFP growth of the 20th century in the PDE • Productivity growth contributions by sector before WWII were much more broadly based (yeasty) than Harberger thought • TFP spillovers from electricity do not fully explain the yeastiness of manuaftcuring growth in the 1920s

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