Biased Technical Change and the Aggregate Production Function

Abstract

This paper offers a classical model of biased technical change in the MarxRicardo tradition as a framework for theoretical and applied studies of growth. The observable data it generates would appear to an unsuspecting economist to be well-described by a neoclassical model with a static Cobb-Douglas production function, when in fact this production function describes only the technological history of the economy. The CobbDouglas form results from the capital-using, labour-saving bias of technical change. The model's trajectory in wage-profit space will lie along the displaced image of the neoclassical factor price frontier, in contradiction to marginal productivity theory. The Solow residual can be reinterpreted by the classical theory as a measure of the size of this displacement.

Real wages and labor-saving technical change: evidence from a panel of manufacturing industries in mature and labor-surplus economies

“…As shown by Duménil and Lévy (1995), if the wage share in costs is large enough, even techniques that raise labor productivity while lowering capital productivity will be profitably adopted. The viability conditions for this Marx-biased pattern of technical change are further analyzed in deterministic models by Foley andMichl (1999), andMichl (1999). In classical models with a Marx-biased pattern of technical change, several growth paths are possible, although they are generally not steady (Michl, 1999).…”

“…The viability conditions for this Marx-biased pattern of technical change are further analyzed in deterministic models by Foley andMichl (1999), andMichl (1999). In classical models with a Marx-biased pattern of technical change, several growth paths are possible, although they are generally not steady (Michl, 1999).…”

Classical biased technical change approach and its relevance to reality

“…Foley and Michl (1999) and Michl (1999) present a method for judging the validity of those approaches. That is the viability condition.…”

“…Foley-Michl's viability criterion corresponds to a one-commodity case of Okishio's theorem. 7 Here, an exposition is given of the condition in continuous time, following Michl (1999). Let (x′,ρ′) stand for the new production technology.…”

“…This condition judges the validity of the marginal productivity theory upon which the neoclassical production is based. While the condition is explained in Foley and Michl (1999) and Michl (1999), our purpose here is to clarify that even under different expectation formation concerning real wages the formula of the viability condition will be the same. The fourth section empirically applies the viability condition to advanced countries, East Asia, Latin America, and Sub-Saharan Africa.…”