bata cerlo\ ab Set ise Discussion on Disembodied and Embodied Technical Progress ee oad‘Wunacademy Fenacademy — maser a Le e e Crack NTA-UGC NET with India's largest learning platform aecietion cond corded — a Use Code mankirat31 to get 10% off on your Unacademy Subscriptionunacademy What you'll get pill Daily Live classes GY Live tests & quizzes CChot with your educator. engoge in Evolucte you preparation with ou regular ‘discussions sk your doubts ond answer ‘mock tests and quzzes ond get dete olla while the chassis going on nals on your performance (Structured courses (}) Unlimited access Al ou coures ore structured in ne with (One subscriotion gets you access to a our you exam sylobus tohelp you best Sve and recorded courses to watch fom prepare fort the comfort of any of your devices‘Wunacademy ‘month = ka Smonths so vse months oso ns Interactive Live Classes “ohyou qtr at Sorgen ape = 16800 # mankirat31 (EEDisembodied and Embodied Technical ProgressDISEMBODIED TECHNICAL CHANGE MODEL * Disembodied technical change is purely organisational which permits more output to be produced from unchanged inputs, without any new investment. * In 1956 Abramovitz wrote the first paper followed by Kendrick and Solow in an attempt to measure the contribution of technical change to economic growth. They treated technical change as “disembodied.” * Disembodied technical change refers to any kind of shift in the production function that leaves the balance between capital ailed labour undisturbed in the long run.* In disembodied technical progress, capital is assumed as homogeneous and technical progress flows down from the outside (economy). * Productivity depends upon the amount of capital stock and not on its age. * Disembodied technical progress improves the productivity of all factors of production or those of a particular kind already existing. * All disembodied technical progress is capital-augmenting in which existing capital is, by one means or another, made more productive.* The production function for such technical change is: Q=SF(K,L, t) erro « (1) where Q represents output, and K and L represent capital and labour inputs, and t represents technical change. Taking Hicks-neutral technical change as the basis, Solow postulated the production function in the special form as Q=AMF(K,L). ++ (2) where A (t)is an index of technical progress which indicates about a steady continuous upward shift in the production function. * Such a production function implies that technical progress is organisational in the sense that its effect on productivity does not require any change in the quantity of the inputs.* To explain disembodied technical progress diagrammatically, assume a per capita (per worker) production function that shifts up through time. * Dividing the production function (2) through by L, we have Q k L7 A(t)f ()In Figure , the per capita production function A(t)O f(K/L) shifts up through time at the rate Ato A (t)1(F(K/L) and A(t)2 f(K/L) with disembodied technical progress in capital and labour, when output per head increases with a given percentage increase in the capital/labour ratio. * It shows that technical progress ° Capital-Labour Ratio is capital-augmenting. AQ, RL) AQ), FEL) AW), {RL* Relying on the United States time series where capital and output grew at approximately the same rate, Solow proceeded to focus on the rate of technical change. * “By using data on the share of capital and labour and the rates of growth of capital per head and output per head, the contribution of the ‘residual’ is obtained after calculating the contribution of capital. This residual is attributed to technical progress.” * Solow came to the conclusion that during 1909-49 the average growth rate of output per head in the United States could be attributed 12.5 per cent to the increase in capital per worker and the residual 87.5 per cent to technical change.Its Criticisms * These conclusions tended to undermine the role of investment in contrast to technical change in the growth process. * Critics further pointed out that the ‘residual approach’ tended to ignore other influences like improvements in the quality of labour due to education, etc * This approach is based on the unrealistic assumptions of perfect competition, constant returns to scale and complete homogeneity of the capital stock. Therefore, Denison, Kendrick, Griliches and others tried to quantify and break down the residual into further components. They contended that the ‘residual’ was not a catch-all and that changes in output were due to changes in the quantities and qualities of inputs, in economies of scale and advances in knowledge rather than the result of technical change, assuming a stable production function.EMBODIED TECHNICAL CHANGE MODEL- VINTAGE APPROACH * In an alternative model entitled Investment and Technical Progress (1960), * Solow himself modified the residual approach based on disembodied technical change in which capital stock is regarded as homogeneous and technical change floats down from the outside. * Embodied technical progress improves the productivity of only new machines built in any period as compared with machines built in the previous period. But it does not increase the productivity of machines already in existence. * Thus new machines are more productive than old machines. Capital stock consists of machines of different vintages, i.e., built at different dates.Assumptions. (a) Capital stock consists of machines of different vintages i.e., built at different dates; (b) new machines are more productive than machines of older vintage; (c) technical change proceeds at some given proportional rate; (d) technical change affects only new machines; (e) all technical progress is uniform; (f) machines embody all the latest knowledge at the time of construction but do not share in any subsequent improvements in technology; (g) only gross investment in new machines is considered in the model; (h) the production function is linear homogeneous of the Cobb-Douglas type.Explanation * Under capital-embodied technical progress, capital stock is not treated as homogeneous. In other words, technical progress is ‘embodied’ in new machines which cannot be applied to existing machines. * Machines embody the latest technology on their date of construction. * Therefore, machines built at different dates are qualitatively dissimilar and a separate production function is needed for machines built in each vintage. * Total output is the sum of output of all machines of different vintages in use. * The production function is linear homogeneous.* It consists of two time variables: * (1) the variable t for time in usual sense; * (2) the variable v for dates of machines in use at time t. Such a capital-embodied production function is Qt = fUt Lt) where J denotes technologically advanced machines, also known as capital jelly.* The variable J is the aggregate stock of capital with each machine weighted by a technical progress factor. * Machines of smaller vintages (small s) receive a smaller weight than new machines (with large V's). Thus J can be written as t= > Cvt(1 + ac)” where Cvt denotes the number of machines of vintages v still in operation in time t 2 v. The oldest machine in time t has v = 0. The technical growth factor is c which represents a constant growth rate per year. (1 + Ac)v represents the adjustment of technical progress that converts each machine of vintage Cvt into equivalent units of technologically advanced machine, J.* Now the growth rate of output is determined by the growth rates of inputs, J and L, : 7 7 a ut +n Where Q = (2 2) »jJ=Sandi= and nLare the elasticities of output with respect to ; ad Linputs respectively.Its Limitations 1. It fails to consider the influence of wage expectations on machine construction. 2. The model is based on assumption of perfect competition and hence it fails to consider factor market imperfections. 3. The model assumes that machines depreciate exponentially. But, as pointed out by Stiglitz, this may be a reasonable assumption for telephone poies but not for most machines. 4. The entire model is based on the hypothesis that machines are of different types and new machines are better than old machines. But it does not treat capital-in-general” which has come to be known as the aggregation of capital stock. $, Another assumption on which this model is based relates to fxed labourrequirements. This is unrealistic for an economy with a higher output per man which may have a lower capital-labour ratio. 6. This model concentrates only on technological progress as embodied in new machines and ignores the problems of inducing innovations through the process of learning and investment in research.