Cleaning House

I’m currently working at a medium sized fund before taking a big career step in a few months. I’m part research analyst, part computer programmer for them.

It’s really clear to me that a lot of the coding I’m doing is so that they won’t have to hire someone as quickly to replace me. Where as in the past they would have some some kid cranking all night on the research half of my job, the stuff I’m producing for them makes it a lot more likely that, depending on what they want, they can instead just open a file, click a button or two, and have an up-to-date report ready to go.

Its interesting to see an improvement in technology increasing the marginal return to labor and simultaneously reducing their demand for labor.

The question is; why is a production function that involves a tfp parameter that effects the capital/labor allocation so rarely seen (non-existent?). It would seem like a pretty useful way to understand what we’ve seen in real wages and productivity over the last fifty years. Productivity goes up, wages and employment go down because the labor share of production goes down.

Setting wages equal to the marginal product of labor is more than just intuitive, its essential to the current methods used in macro. It’s pretty hard to define an equilibrium if your economy drifts towards N=zero.

I don’t know much about the history of the Cobb Douglas production function but its amusing that while modeling today makes such a big deal about micro foundations, the CD production function is essentially a Social Planning Emperor who isn’t wearing much clothing, if any at all. Its popularity has to have something to do with ease of use, no?


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