The Vintage Effect in TFP Growth: An Analysis of the Age Structure of Capital

28 Pages Posted: 7 Jun 2003 Last revised: 3 Nov 2010

See all articles by Maury Gittleman

Maury Gittleman

Bureau of Labor Statistics

Thijs ten Raa

Tilburg University - Center for Economic Research (CentER)

Edward N. Wolff

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER); Bard College - Levy Economics Institute

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Date Written: June 2003

Abstract

The age structure of capital plays an important role in the measurement of productivity. It has been argued that the slowdown in the 1970's can be ascribed to the aging of the stock of capital. In this paper we incorporate the age structure in productivity measurement. A proposition proves that Nelson's (1964) formula is wrong. Our final proposition shows that inclusion of the vintage effect prompts an upward correction of measured productivity growth in times of an aging stock of capital. Here capital ages if the investment/capital ratio falls short of the inverse of the capital age, as a first proposition shows. The analysis rests on a rigorous accounting for vintages. We translate the Bureau of Economic Analysis' age of capital data into a measure of rates of obsolescence. Empirically, the correction of productivity growth for the vintage effect requires an estimate of the obsolescence and depreciation parameters on the basis of age data. The results indicate that the use of capital stock in efficiency units does cause some smoothing of Total Factor Productivity growth over time. In the 1950s, when investment accelerated, the vintage-adjusted capital growth rate well exceeded the BEA growth rate, and vintage-adjusted TFP growth is significantly lower than unadjusted TFP growth. The measured productivity slowdown of the 1970s is somewhat ameliorated.

Suggested Citation

Gittleman, Maury and ten Raa, Thijs and Wolff, Edward N., The Vintage Effect in TFP Growth: An Analysis of the Age Structure of Capital (June 2003). NBER Working Paper No. w9768, Available at SSRN: https://ssrn.com/abstract=414266

Maury Gittleman

Bureau of Labor Statistics ( email )

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Thijs Ten Raa

Tilburg University - Center for Economic Research (CentER) ( email )

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Tilburg, 5000 LE
Netherlands

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Edward N. Wolff (Contact Author)

New York University (NYU) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Bard College - Levy Economics Institute

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United States

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