1. He writes,
My old professor in general chemistry (Norman Nachtrieb–now deceased) told us that “science is the art of successful approximation.” Ideal gas law is valid as long as intermolecular forces are assumed to be negligible. A step in an engine cycle is adiabatic as long as no appreciable heat escapes into the environment. The words “negligible” and “appreciable” are purposely left vague, and depend on how precise an answer one actually needs in the result.
I do not believe that the neoclassical model of two factors of production is a decent approximation for any purpose. In the essay, I explain why the concept of aggregate labor productivity is not a useful approximation.
The main claim of the neoclassical model is that factors of production are compensated according to their marginal productivity. We do not observe this in practice. The neoclassical model says that all “labor” is compensated identically at the rate w, and all “capital” is compensated identically at the rate r. Instead, we observe heterogenous wage rates and heterogeneous returns on various forms of investment.
The neoclassical model says that the main cause for variation in wage rates should be the amount of capital per worker. To explain the difference in wages between a construction worker in the U.S. and a construction worker in Mexico, you should be able to point to much higher capital per worker in construction in the U.S. But it turns out that very little of this “capital differential” is tangible. A lot of it reflects cultural differences in management and social norms.
Suppose that you wanted to explain why software engineers are paid more at Google than at some other firm. According to neoclassical theory, that must be because their marginal product is higher at Google. But you cannot even begin to measure “marginal product.” They are working on teams that create a joint product. So the neoclassical claim is vacuous in this case–you can neither confirm nor refute it.
2. Jelski writes,
Contrary to Mr. Kling, I think culture changes are on a generational timescale–roughly 30 years.
If this is true, it does not refute my point that cultural change is accelerating. When did cultural change start occurring at a generational timescale? Probably not before the 20th century. Go back several hundred years, and hardly any cultural change took place over the span of a generation.
Suppose we were to look at measures of economic change. I think the economy is becoming more specialized at a faster rate than before.
How many companies broke into the top 100 between 2000 and 2010, and how does that compare with the number that broke in between 1980 and 1990?
How many new occupations were created between 2000 and 2010, and how does that compare with the number created between 1980 and 1990? (note: the BLS may not have been able to track this accurately)
Take the top five occupations in 1980, and calculate the change in the percentage of the labor force engaged in those occupations in 1990. Then take the top five occupations in 2000, and calculate the percentage of the labor force engaged in those occupations in 2010. If change is accelerating, then we should see a much bigger drop in the recent period.