TY - JOUR AU - Gittleman,Maury AU - Raa,Thijs ten AU - Wolff,Edward N. TI - The Vintage Effect in TFP Growth: An Analysis of the Age Structure of Capital JF - National Bureau of Economic Research Working Paper Series VL - No. 9768 PY - 2003 Y2 - June 2003 UR - http://www.nber.org/papers/w9768 L1 - http://www.nber.org/papers/w9768.pdf N1 - Author contact info: Maury Gittleman Bureau of Labor Statistics 2 Massachusetts Avenue NE, Rm 4130 Washington, DC 20212 E-Mail: gittleman_m@bls.gov Thijs ten Raa Tilburg University Box 90153 5000 LE Tilburg The Netherlands E-Mail: tenRaa@UvT.nl Edward N. Wolff Department of Economics New York University 19 W. 4th Street, 6th Floor New York, NY 10012 Tel: 212/998-8917 Fax: 212/995-4186 E-Mail: edward.wolff@nyu.edu AB - 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. ER -