T . Lindh Economics Letters 69 2000 225 –233
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growth rates in W and D is then negative and the relative gap in input coefficients will decrease. This would be consistent with increasing scrapping rates and a relatively abundant supply of labor at the
same time as quasi-rents diminish. This could be the case in the later stages of a slowdown due to scarcity of scrapping and would hence tend to prolong the time to recovery.
Probably, growth in labor supply will accelerate labor productivity growth, but there are also mechanisms working in the other direction so the contribution cannot in general be determined.
4. Empirical relevance
The real world is of course not strictly putty-clay. On the other hand, old capital is not a perfect substitute for new capital either, and labor can be reallocated without scrapping only to the extent that
input coefficients in older equipment are flexible. Different capital items will have very varying lengths of life, but complementarities among items could still make it likely that much of the
scrapping in any given year is dominated by units of equipment and replacements of short-lived components originally installed within a fairly narrow period of time.
Is there then any empirical evidence in favor of putty-clay effects from an irregular capacity distribution? Benhabib and Rustichini 1993 and Biørn and Frenger 1987 estimate putty-clay
vintage models on aggregate data 1929–1988 and 1964–1983, respectively with these results. There is more evidence pointing to the possibility of putty-clay effects. Space permits us to mention only
some of it.
6
There is micro evidence from surveys of metalworking equipment in the United States that
substantial parts of the equipment installed in the late 1930s were in operation up to the 1970s and that the metalworking machinery as an aggregate was aging fast in the beginning of the 1930s and the
1960s. As can be deduced from Eq. 3.3 the variation in wage growth and average labor productivity
would tend to move out of phase shortly after a period with scarce capital to scrap. This is evident in data from the 1970s in Sweden, where wage costs surged upwards in the mid 1970s while at the same
time productivity growth fell and even became negative. Similar developments can be documented for many other countries. In the U.S. data a similar desynchronization takes place somewhat earlier in the
1960s and recurs later in the 1980s.
There is a well-established empirical correlation between investment and growth. In this model, from 2.5 and the first-order conditions 2.9 it can be derived that
1 2 aWD ]]]]
F 5 k.
4.1
t
D1 2 a A simple regression of the labor corrected change of GDP F on investment k using 117 years of
t
Swedish data yields a highly significant coefficient of about 0.08, which is consistent with reasonable values of the parameters. Hence, conditional on the putty-clay hypothesis, in the medium run it seems
no serious empirical restriction to add the Cobb–Douglas and fixed expectation assumption.
6
In The American Machinist Inventories, taken 14 times since 1925; for the last one, see American Machinist Inventory 1989. I thank Charles Hulten for bringing this rich material to my attention.
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. Lindh Economics Letters 69 2000 225 –233
Of course, the capital structure may also be such that it enhances productivity acceleration and compensates for retardation in technical change. This other side of the coin is thus consistent with the
hypothesis that the echoes from high investment activity in the 60s reached us in the 90s. However, it is hard to find data on the vintage structure of capital to verify such an hypothesis. Ma and Lau 1994
develop the theoretical possibility to recreate the distribution from aggregate profit function data which may be helpful in view of the scarcity of direct data.
5. Conclusions
