Dale Jorgenson: Investment, growth accounting, and economic measurement

John Fernald, Robert Inklaar, Bart van Ark 24 June 2022

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It was with deep sadness that we learned that Dale Jorgenson had died on 8 June 2022 at the age of 89. He was an intellectual giant whose contributions to economics were broad and deep. He changed how we think about investment, he implemented better ways to measure productivity, and he pushed national accountants to update how they measure economies around the world. For each of us personally, he was a mentor and a friend.

Dale was prolific. Over more than 60 years, he published well over 300 articles and authored or edited 37 books. His research productivity barely slowed even in his late 80s. He collaborated with more than 70 co-authors. He continued to teach Harvard undergraduates up to the end of 2021, at which point he stepped back from being an active full professor of economics at Harvard and became a research professor. 

Dale was always impeccably dressed. He spoke crisply and authoritatively. He had a serious demeanour that belied his dry sense of humour and personal warmth. He was a great socialiser and an amazing host at events. Indeed, we remember events with up to 100 people where he would have a special word for everyone, making all feel part of Dale’s extended family. The support and mentorship that Dale showed so many throughout their careers endeared him to generations of students and other researchers. For example, Dale was Ben Bernanke’s undergraduate thesis adviser. Ben describes Dale as “an extraordinarily kind and effective mentor… [who was] supportive of me throughout my whole career.”1

For John, Dale provided support, reassurance and encouragement when John was struggling to write a PhD thesis; Dale has been a source of constant support over the subsequent decades. For Bart, Dale provided inspiration and support for the EU KLEMS growth accounting project in the early 2000s: that project provided data across the European Union, and Dale was the mastermind behind extending those data more broadly through the World KLEMS project. For Robert, Dale’s work on productivity measurement has been foundational for his academic career; Dale always encouraged work comparing productivity across countries and over time, such as in the Penn World Table (PWT).

The remainder of this column highlights Dale’s intellectual contributions in three areas: investment, growth accounting, and economic measurement. These contributions have been profound, pervasive, and lasting. The in-depth survey of Dale’s research in Fernald (2022) provides much more detail in these areas and discusses Dale’s broader research contributions. A characteristic of his many contributions was a tight integration of economic theory, appropriate data that matches the theory, and sound econometrics.

Theory and empirics of capital investment 

First, early in Dale’s career, his groundbreaking work on the theory and empirics of capital investment was transformative for economics. Investment in tangible and intangible capital, including in human capital, is central to economic growth as well as business cycles. As the opening sentence of Jorgenson (1963) reads, “There is no greater gap between economic theory and econometric practice than that which characterizes the literature on business investment in fixed capital.” Dale’s 1963 paper closed that gap. In 2011, the American Economic Review (Arrow et al. 2011) named that paper one of the 20 most important papers it had published in the preceding century.

Even today, academic theories of investment have their roots in Jorgenson’s research, which viewed demand for investment as a derived demand from the value of capital as a factor of production. The cost of capital, or the implicit rental rate per real dollar of capital stock, plays a key role in many economic models.

Jorgenson’s initial 1963 exposition included taxes on capital. Hall and Jorgenson (1967) extended the model and showed how the framework could incorporate quite detailed features of the tax code. Those taxes affect the cost of capital, which in turn affects the desired capital stock and, as a result, demand for investment. The cost of capital has become the central theoretical concept for studying how taxes and changes in taxes affect capital accumulation. For example, the effects of a wide range of taxes can be summarised through a single marginal effective tax rate (Auerbach and Jorgenson 1980).

Modern growth accounting

Second, Dale was a founder of modern growth accounting. He broke substantial new ground relative to earlier empirical work by Moses Abramovitz, Edward Denison, John Kendrick, Angus Maddison, and others. Jorgenson and Griliches’s (1967) seminal paper conceptualized aggregate growth accounting in a theoretical framework that remains standard. The paper drew out several implications of neoclassical production theory beyond those emphasized in Solow (1957). For example, Jorgenson and Griliches emphasised the need to use chain aggregation for output, have appropriate deflators for investment, and account for changes in the composition of capital and labour. Official statistics in many countries, including the United States, implement Jorgenson’s recommendations in all these areas.

In following decades, Dale continued to develop, refine, extend, and implement growth accounting methods. His goal was to understand the sources of overall economic growth. An important milestone was Jorgenson et al. (1987). That monumental book analysed the sources of US economic growth at an industry level. To do so, it developed what was essentially the first industry KLEMS dataset.2 This project required “a truly massive empirical research effort” (Jorgenson 1988: 39). For example, nominal and real industry inputs and outputs needed to be fully consistent with economic theory as well as with aggregate values for these variables. The underlying data had often been collected for different purposes and required extensive merging and reworking. 

Throughout his career, Dale used his tools and approaches to address major economic issues. For example, he characterised the economic effects of shocks to the price of energy and from policies responding to those shocks (for example, Hudson and Jorgenson 1974). His analysis of the US productivity acceleration in the late 1990s helped to shape and quantify the consensus on the key central role played by information technology. He sought to understand the growth accounting sources of the rise of China (Cao et al. 2009). He analysed ways to address climate change at minimal economic cost (e.g. Jorgenson et al. 2014). In all these areas, Jorgenson’s insights used his research on growth accounting and on the cost of capital. In his empirical work (including in empirically based, intertemporal general equilibrium models), Dale consistently found a major role for investment and capital accumulation as drivers of economic growth and economic welfare.

Economic measurement

Third, Dale’s research has had a major influence on official (and semi-official) economic measurement, especially in the national accounts and growth accounting. The influence reflects first, his laser focus on measuring variables in a way that is consistent with theory, and second, his tireless ‘proof of concept’ efforts. Larry Summers (quoted in Hagerty 2022) noted that Dale had the “audacity and energy to put together his own version of the national income accounts.” By doing so, Dale showed that these theoretically consistent measures could be implemented in practice. Landefeld (2020) highlights a range of ways in which Jorgenson’s research has influenced the official accounts. Our informal observation is that in measurement and growth accounting circles, Dale is viewed as a godlike figure.

Jorgenson’s influence extended worldwide. Many countries, including the US, have developed official growth accounts that follow the Jorgenson template. The Organization of Economic Cooperation and Development (OECD) manuals on capital (Schreyer 2009) and productivity growth (Schreyer 2001) recommend that countries implement the Jorgenson growth accounting system at an aggregate and industry level. The United Nation’s (2009) System of National Accounts 2008 recommends that constant quality inputs of labour and capital be implemented along Jorgensonian lines as part of the production account. As of 2015, at least 50 countries produced constant quality measures of labour input (that is, labour input measures that incorporate changes in the composition of hours).3 Jorgenson and Schreyer (2013) note that in an increasing number of countries, notably Australia, Canada, Denmark, and the Netherlands, statistical authorities provide industry-level and economy-wide productivity estimates as part of their official (national accounts) statistics.

Dale’s influence was paramount in developing consistent industry KLEMS datasets that span most of the world’s major economies, including North America, Europe, and many economies in Asia and Latin America. Jorgenson et al. (1987) serves as the template for these studies. The datasets have been widely used in recent decades for growth accounting, econometrics, and other applications. But they would not exist without Dale’s tireless efforts to motivate and support this work. He created a well-connected group of growth accounting scholars. He united them by forming the World KLEMS community, which he hosted several times for conferences at Harvard.4

This broader availability of consistent productivity data enables much of today’s discussions in policy circles and the press about productivity growth and the sources of economic growth more broadly. And Dale’s impact is not just seen in growth policy. For example, his work continues to inspire policy discussions on taxes and the environment.

Concluding comments

Dale is survived by his wife Linda and two children, Eric and Kari. Dale and Linda were married more than 50 years and were a close team. Linda is a lively, energetic, and personable attorney. Despite her professional obligations, she actively engaged with Dale’s research: they talked about his research over dinner, she analysed the reactions of audiences to Dale’s talks, and she mingled with his colleagues – indeed, we remember her using a disposable camera to capture memorable moments and people.

This column gives a flavour of Dale’s intellectual contributions but of necessity barely touches the surface of his extraordinary career. Dale will be missed by his family, friends, and professional colleagues. We owe him our gratitude, the inspiration he provided will be long-lasting, and his work will live on.

References

Arrow, K J, B D Bernheim, M S Feldstein, D L McFadden, J M Poterba and R M Solow (2011), “100 Years of the American Economic Review: The Top 20 Articles”, American Economic Review 101(1): 1-8. 

Auerbach, A J, and D W Jorgenson (1980), “Inflation-Proof Depreciation of Assets”, Harvard Business Review 58(5): 113-18.

Berndt, E R, and D W Jorgenson (1973), “Production Structures”, in D W Jorgenson and H S Houthakker (eds), U.S. Energy Resources and Economic Growth, chapter 3, Energy Policy Project.

Cao, J, M S Ho, D W Jorgenson, R Ren, L Sun and X Yue (2009), “Industrial and aggregate measures of productivity growth in China, 1982-2000”, Review of Income Wealth 55(s1): 485-513.

Fernald, J (2022) “Dale W. Jorgenson: An Intellectual Biography”, Federal Reserve Bank of San Francisco Working Paper 2022-08.

Fraumeni, B M (2019) (ed.), Measuring Economic Growth and Productivity: Foundations, KLEMS Production Models, and Extensions Paperback, Elsevier.

Fraumeni, B M and D W Jorgenson (1981), “Relative Prices and Technical Change”, in E Berndt and B Field (eds), Modeling and Measuring Natural Resource Substitution, pp. 17-47, MIT Press.

Hall, R E and D W Jorgenson (1967), “Tax Policy and Investment Behavior”, American Economic Review 57(3): 391-414.

Hagerty, J R (2022), “Harvard Economist Dale Jorgenson Found Better Ways to Gauge Productivity”, Wall Street Journal, 10 June 2022.

Jorgenson, D W (1963), “Capital Theory and Investment Behavior”, American Economic Review 53(2): 247-59. 

Jorgenson, D W (1988), “Productivity and Postwar U.S. Economic Growth”, Journal of Economic Perspectives 2(4): 23-42.

Jorgenson, D W, R J Goettle, M S Ho and P J Wilcoxen (2013), Double Dividend: Environmental Taxes and Fiscal Reform in the United States, MIT Press.

Jorgenson, D W, F M Gollop and B M Fraumeni (1987), Productivity and U.S. Economic Growth, Harvard University Press. 

Jorgenson, D W, and Z Griliches (1967), “The Explanation of Productivity Change”, Review of Economic Studies 34(99): 249-80.

Jorgenson, D W, M S Ho and K J Stiroh (2005), Productivity, Volume 3: Information Technology and the American Growth Resurgence, MIT Press.

Jorgenson, D W, and P Schreyer (2013), “Industry-level productivity measurement and the 2008 System of National Accounts”, Review of Income and Wealth 59(2): 185-211.

Schreyer, P (2001), Measuring Productivity – OECD Manual: A Guide to the Measurement of Industry-Level and Aggregate Productivity Growth. OECD Publishing. 

Schreyer, P (2009), Measuring Capital – OECD Manual 2009, second edition, OECD Publishing.

United Nations (2009), System of National Accounts 2008.

Endnotes

1 Quoted from an email from Ben Bernanke to John Fernald, 1 September 2021.

2 Jorgenson had developed earlier prototype industry KLEMS datasets with various authors, including Berndt and Jorgenson (1973) and Fraumeni and Jorgenson (1981).

3 Cited by Dale Jorgenson in email correspondence with John Fernald, 3 October 2015.

4 For an up-to-date overview of KLEMS studies around the world, see the volume by Fraumeni (2019). In October 2022, the 7th World KLEMS conference will be held at the University of Manchester.

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Topics:  Frontiers of economic research Macroeconomic policy

Tags:  obituary, growth accounting, capital investment, KLEMS

Schroders Chaired Professor of European Competitiveness and Reform and Professor of Economics, INSEAD

Professor of Economics, University of Groningen – Developer Penn World Table and Maddison Project Database

Professor of Productivity Studies, Alliance Manchester Business School, University of Manchester

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