Robert Solow won the Nobel prize in economics for his Solow residual. He's...a big deal.
In general, we like economies to grow, making GDP bigger. But where is that growth coming from? Many economists will tell you it’s coming from the factors of production, meaning the accumulation of capital and labor. All those factories and their equipment and tools and workers...it comes from all that stuff. Multiplied by the deployment of technology.
Solow thought bigger. He asked, "What about the part of an economy’s output growth that has nothing to do with the factors of production?" That’s what the Solow residual measures. Solow’s model held capital and labor constant, and looked at an increase in output from there. How do you make more with the same stuff? Is it possible? Yep...because you’re being more efficient with your capital and labor.
Maybe you introduced the assembly line to your factory. That made things much more efficient. Maybe your labor got more experience and better trained. Maybe your staff is just awesome...or maybe you’re driving them like slave labor. Whatever the cause: higher output with the same inputs means more efficiency and productivity.
The reason the Solow residual is such a big deal is because he found that increases in efficiency were much more responsible for increases in output than increases in capital. The Solow Residual determined that only one-eighth of the increase in labor productivity was from an increase in capital in the U.S. Yep...America was mostly built on the vision and Brunswicks of risk-takers who started companies and then paid workers to execute their vision.
Thanks, Henry F. Thanks, Bill G. Thanks, Jeff B. We appreciate the jobs. (And global domination.)
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Econ: How does Technology Change Market ...6 Views
And finance Allah shmoop What is technological change Well let's
see We all benefit from technology Just think about it
We're talking to you through time and space thanks to
a little thing called the Internet Yeah great No big
deal In economics technological change is used to describe anything
that increases output without increasing input In other words technological
changes magic It's anything that makes creating economic value more
efficient like the Internet and computers are tools that we
often think of when we hear technology But changes in
processes count as technology as well For instance the invention
of the assembly line and great process there was first
put into play by Henry Ford in the late nineteen
twenties and it was the key to making mass production
possible By combining the use of machines with stationed workers
and interchangeable parts Ford was able to produce far more
vehicles with the same amount of inputs as before Even
hammers wristwatches and dialogue were once leading technological change Today
we've got self driving cars flying cars three D printing
and neural network development increasing market efficiency and well yes
Granted our relationship with technology has never been straightforward in
the case of the assembly line While workers in Ford's
factories did have better working conditions In some ways they
had worse working conditions In other ways workers didn't have
to do any heavy lifting or low stooping like they
did before And there were jobs almost anyone could dio
plus the assembly line allowed for to pass on some
of those efficiency gains from technological change to workers wage
improvements Despite these benefits the turnover at Ford's assembly line
jobs was incredibly high For a while workers could on
Lee do the mind numbing jobs for so long It
was also argued by Karl Marx that doing the same
little repetitive task over and over and over again made
it difficult for workers to feel like they were actually
contributing anything meaningful in their jobs Well guess what The
turnover at Ford's factories was so high that Ford decided
to give his workers two days off working only five
days a week eight hours a day What a concept
That's right The technological change of assembly lines lead to
increased market efficiency and supreme boredom among workers which then
led to the forty hour work week who go forward
Increasingly these repetitive type tasks are being done by advanced
robots Even more creative jobs like writing for shmoop and
making music composition are now being done by robots It's
nothing personal It just makes sense for business to use
more robots If doing so allows them to doom or
with less well as technological change progresses it's increasingly a
concern that robots will take up so many jobs There
won't be many left for a human Beings will have
a huge part of the workforce just permanently unemployed then
Plus most economic gains from technological change in the last
several decades haven't ended up in workers pockets which is
kind of a concern We've always had a love hate
relationship with technological change We love how easy it makes
our lives but sometimes it makes them too easy can't
live with robots and well can't live without him What