4 - On the measurement of technological change

Summary

An historical play about growth models might consist of three acts: in the first, labour, supported by an invisible chorus of capital, land and technological progress, holds the stage; in the second, capital and labour exchange roles. Finally, in the third act now being performed, labour, capital (and sometimes land) and technological progress appear on the stage together, with the first two (or three) reading from the script while technological progress holds forth the rest of the time. So treated, this newcomer has done remarkably well. According to several recent American studies, it has been responsible for some 80–90% of the growth of output per unit of labour, the remaining 10–20% being all that capital (and land) could claim. True enough, this large contribution has not been made by technological progress alone; a whole group of actors consisting of technological progress in the narrow sense, economies of scale, external economies, improved health, education and skill of the labour force, better management, changes in product mix and many others have been involved. For this reason, the names given to this group have ranged from “output per unit of input,” “efficiency index,” “total factor productivity,” “change in productive efficiency,” “technical change,” all the way to “measure of our ignorance.” To emphasise the nature of this concept and to avoid loaded words, let us call it the “Residual”.