BY exploitation, we mean that a factor of production is receiving less than its marginal revenue product. Relative exploitation connotes that the marginal rate of technical substitution of two factors is not equal to the ratio of their scarcity prices. Hence, either both factors may be exploited, but in different degrees, or one factor may be exploited while the other is not. In the present paper, a measure of the change in relative exploitation of capital and labor is presented together with empirical results for three two-digit industries (machinery except electric, primary metal industries, and electric and gas utilities), where the observations are drawn from the period, 1948-1960. Knowledge of variations in relative exploitation is useful in quantifying and explaining the sources of change in the distribution of income between the factors of production. This, in itself, is sufficient justification for focusing on the change in relative exploitation rather than the level. Although there may be more intrinsic interest in a measure of the level of exploitation as defined above, the framework used below does not lend itself to such a measure. The paper is laid out in the following manner. An elementary model of exploitation within a constant elasticity of substitution (CES) framework is presented first. This is followed by an econometric specification of one of the equations which must be tested in order to derive the required measure, while the succeeding section is devoted to the direct estimation method of the second required equation, the CES production function. Next, the empirical results for three selected industries are presented and discussed. The subsequent section contains the quantification of the changes in relative exploitation. In a later section, some problems with the framework and measuring procedures are discussed.

Murray Brown, Joel Popkin, "Reply" to R. G. Gregory, "A Measure of Technological Change and Returns to Scale: A Comment", The Review of Economics and Statistics, Vol. 47, No. 4 (Nov., 1965), pp. 454-457

JN order to account for the increase in output from I870 to I953, Professor Moses Abramovitz derives a measure which tells us how net national product per capita would have grown had the productivity of resources remained constant at base period levels while only the supplies of resources per head increased. 1 He infers that almost the entire increase in net product per capita is associated with the rise in productivity. 2 Since Professor Abramovitz utilizes base period weights proportionate to incomes going to labor and property, the measure of productivity increase assumes that the economy was operating under constant returns to scale in all periods when inputs were increasing and that all change is of the type.3 Our purpose in the present paper is to provide a measure by which changes in output can be decomposed into those changes attributed to advances in and technology and changes in output attributable to the exploitations of economies of scale. The method of measuring these magnitudes is based on an analysis of a production function. Although the method is applicable to any type of production function, the Cobb-Douglas form is used in the present paper. The analysis is based primarily on a series expansion of the production function and considers not only the capital and labor inputs as variables but the technologically determined parameters also as variables. That is, the parameters of the production function become functions of time in this conception. If all but the linear part of the expansion is suppressed and if the derivatives can be approximated by discrete changes, then it is possible to decompose changes in output over any discrete time period into output changes attributable to (a) the weighted change in inputs, (b) economies of scale (if they exist), (c) neutral change and (d) nonneutral change. The statistical procedure consists in fitting the production function to various time periods and isolating those in which there was no nonneutral change; we call these technological The resulting parameter estimates are stable with respect to one component of total output change. Then, for each of these epochs, we can measure (a), (b), and (c); the change in the parameter estimates between epochs permits the measurement of output change attributable to non-neutral change. In the present paper the method is confronted empirically with John Kendrick's data (see Appendix) for the United States nonfarm domestic sector, I890-I958. The results of the empirical confrontation may be anticipated here. In the analysis of the United States nonfarm domestic sector, the statistical method of tolerance intervals is employed to isolate the epochs. Three epochs are tentatively established: I890I9I8, I9I9-I937, I938-I958, that is, within each of these periods, the production function did not twist sufficiently so as to indicate a new non-neutral technology. The time shapes of economies of scale and the two types of change over the period I890-I958 are tentatively spelled out. It is found that economies of scale tended to exist in the first epoch while constant returns appeared to be evident in the last two; neutral change appears to be lowest in the first epoch and becomes increasingly more important in the second and third; non-neutral change traces a cycle over the overall time period, the *The authors would like to thank Professor John deCani for his comments. The computations in the paper were supported by The University of Pennsylvania Computer Center and The National Science Foundation. 1 Resource and Output Trends in the United States Since I870, Papers and Proceedings of the American Economic Association, XLVI (May I956), II. 2Ibid. 'Other measures of change that assume constant returns to scale have been developed by W. E. G. Salter (Productivity and Change (Cambridge, I960), 30-35, and fn. 1, 35). R. M. Solow, Technical Change and the Aggregate Production Function, this REVIEW, XXXIX (August 1957), 3I2-320.

AMONG the most elusive magnitudes to ,[_1quantify is the influence of technological change on employment, the reason being that technological change in any context has been difficult to isolate. Clearly, the traditional productivity ratios, such as output per unit of labor input, cannot be used to measure technological employment, since a productivity index embodies, in a seemingly indecomposable manner, the effects of in capital utilized, returns to scale, neutral and non-neutral technological change, and relative factor prices. Thus, in order to construct a measure of technological employment, we need to be able to quantify, at the minimum, the effects of in technology separately from the other forces. Yet, these other forces have meaning in themselves. Therefore, we should like to isolate the effect on the change in employment of in the following: (a) the scale of output, (b) the relative prices of capital and labor (assuming, for simplicity, only two factors), (c) returns to scale, and (d) neutral and non-neutral technology.' The present paper presents a method of measuring the forces (a)-(d) on employment and tests it on data for the private domestic non-farm sector of the United States for the period 1890-1958.2 It does this in such a way as to avoid the problem of the interaction among the forces (a)-(d) -at least to a first-order approximation. Stated differently, our objective is to frame a general method of measurement which permits a quantitative distinction to be drawn between structural changes and demand in terms of their effect on employment.8 Since the method is general, the forces (a)-(d) can be quantified for any subset in the total employed; for example, skilled or unskilled labor, regional unemployment, etc. The only requirement is that we be able to estimate a demand relation for the subset in question. We should like to emphasize the methodological rather than the substantive aspects of this paper for several reasons. The principal reason, though, is that the data, by virtue of their aggregative nature (inter alia), are not suitable to the method we will apply. Also, since the method derives from the micro theory of the firm, it should be applied, at most, to industry data. In what follows, the method is first presented verbally as far as possible. This is followed by a more precise statement of the method which permits a confrontation with data. The empirical measures of the private domestic non-farm sector are then set out and discussed. An appendix embodies a discussion of the data used in the paper.