Term 2 week 4 productivity slowdown Flashcards
How do you measure productivity?
How do you measure it mathematically?
TFP or solow residual
At = Yt / Kt^alpha . Lt^1-alpha
What have been the patterns in global productivity?
Why is this strange?
-Countries like US and UK have seen slowdowns in growth
-Countries like italy have had decrease in growth
-Strange as growth ICT levels are higher than ever.
What are the different hypothesis that can explain the productivity slowdown?
-Mismeasurement
-Declining inputs in research
-Declining productivity in research
How could the romer model explain the productivity slowdown?
The change in At is equaled to zbar . Lat
Either productivty
What does the data say about declining inputs in research?
Number of people with high level of education is increasing
Number of effective researchers on macro and micro level
Western world number of employed researchers is increasing.
What does the data say about declining research productivity?
What explains this trend?
Research productivity is decreasing
On micro level productivity is decreasing
Less investment in R&D
What is the impact on the Romer model from the declining research productivity
We can add a discount factor of A^beta
Beta is less than 1
The higher is At the lower will be the growth rate
At high At the growth rate wiill be lower and lower..
What is the mismeasurement hypothesis ?
Either underestimating GDP
or overestimating K and L
popular arguement about output
changes in prices / quality
Free internet services
What causes the mismeasurement in Yt?
Yt is divided by GDP deflator for real Yt
When measuring prices we would overcorrect for quality increases that increase prices.
Why can free ICT services impact mismeasurment
They create large consumer welfare but do not enter GDP
so slow output growth may not be slow output growth
What do economists think about mismeasurement?
Why is this?
That it is unlikely to explain a large part of productivity slowdown
Mismeaurement should say that those with higher ICT should have lower GDP but this is not the case.
-if it was true we would only see ICT sectors go down, but the productivity is going down in all sectors
-if you use time spent on free ict as wage it only accounts for a small amount
What is the solow-romer model?
What is important about the labour part of this function
It combines the transition dynamics of solow with endogenous technology growth of romer
What is a balance growth path?
Variables are growing at different but constant rates.
What is the growth rate of output?
start with Yt = At . Kt^alpha . Lt^1-alpha
gyt = gat +alphagkt+ glt but as population is exogenous and fixed it is 0
so gyt = gat + gkt
in long run all growth rates are positive so gyt> gat
What is the growth rate of capital in solow-romer model?
gkt+1 = S . Yt/Kt - depreciation
on balanced growth path gk must be constant so Yt/kt must be constant
so gYt = gkt
