Energy, Obsolescence, and the Productivity Slowdown

48 Pages Posted: 22 Apr 2004 Last revised: 13 Nov 2014

See all articles by Charles R. Hulten

Charles R. Hulten

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

James W. Robertson

National Bureau of Economic Research (NBER)

Frank C. Wykoff

Claremont Colleges - Pomona College; National Bureau of Economic Research (NBER)

Date Written: October 1987

Abstract

The growth rate of output per worker in the U.S. declined sharply during the 1970's. A leading explanation of this phenomenon holds that the dramatic rise in energy prices during the 1970's caused a significant portion of the U.S. capital stock to become obsolete. This led to a decline in effective capital input which, in turn, caused a reduction in the reduction in the growth rate of output per worker. This paper examines a key prediction of this hypothesis. If there is a significant link between energy and capital obsolescence, it should be revealed in the market price of used capital: if rising energy costs did in fact render older, energy-inefficient capital obsolete, prospective buyers should have reduced the price that they were willing to pay for that capital. An examination of the market for used capital before and after the energy price shocks should thus reveal the presence and magnitude of the obsolescence effect. We have carried out this examination for four types of used machine tools and five types of construction equipment. We did not find a general reduction in the price of used equipment after the energy price shocks. Indeed, the price of used construction equipment - the more energy intensive of our two types of capital - tended to increase after 1973. We thus conclude that our data do not support the obsolescence explanation of the productivity of slowdown.

Suggested Citation

Hulten, Charles R. and Robertson, James W. and Wykoff, Frank, Energy, Obsolescence, and the Productivity Slowdown (October 1987). NBER Working Paper No. w2404, Available at SSRN: https://ssrn.com/abstract=256073

Charles R. Hulten (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James W. Robertson

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Frank Wykoff

Claremont Colleges - Pomona College ( email )

Department of Economics
Claremont, CA 91711
United States
(909) 621-8303 (Phone)
(909) 621-8576 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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