Technical change and productivity in a salt producing firm

Abstract

This study demonstrates the feasibility of measuring and identifying the separate contributions of the disembodied and embodied elements of technical change at the firm level.

In short the study supports the embodiment hypothesis and illustrates the feasibility of measuring the various components of technical change within a two factor production function framework at firm level. The study suggests the need for more microeconomic productivity and technical change studies.

The analytical framework was based on an iterative constrained (lagrangian type) generalized least square' procedure on the embodied Cobb-Douglas production function. This, and estimation of various parameters of other neoclassical production functions (i.e., C.E.S., C.E.S. embodied, and V.E.S.) led to the measurement of the various components of the changing technology: It was concluded that the firm's capital expansion program has had a favorable impact on productivity (i.e., the rate of embodiment was found to be approximately 1.5 percent per month). However, the firm has been faced with negative disembodied elements which have deterred their productivity gains (i.e., the rate of disembodiroentwas found to be about -1.1 percent per month). The analysis suggests that the capital intensification program has improved the efficiency of the labor input. However, the changing technology has also had a labor saving bias.

Six years of monthly data on a salt producing firm led to the development of detailed output and input series. In addition, utilization factors based upon a bottleneck in the production operation and information on maximum potential output provided an excellent method for accounting for underuti1ization of capital. A unique downtime factor was created to account for work stoppages, breakdowns, etc. that the firm encountered during their capital expansion program.

Since the passage of the Employment Act of 1946, which charged the Federal Government with the responsibility of ensuring maximum production, there has been increasing interest in productivity, as well as other factors causing increased production and growth in the United States. Economist, working within an aggregate production function framework, have attempted to attribute the increases in production either to changes in the inputs or to factors referred to as technical change. From the early work of M. Abramowitz [1956], R. Solow [1957] and others, two opposing theories (the disembodiment and embodiment hypotheses) were developed about the nature of the changing technology and its impact on productivity. Considerable controversy still exist about the ability to measure the separate contributions of the various elements of both hypotheses.