Chapter 2. Technology Evolution

Joshua L. Rosenbloom

University of Kansas and National Bureau of Economic Research

Technology evolution refers to changes in production processes or institutional arrangements that make it possible with a fixed set of resources to produce either (1) a greater quantity of a given product or service or (2) to produce new or qualitatively superior products or services. Technology evolution is the primary cause of rising living standards in modern economies, and the divergence of technological capabilities across countries is the chief reason for international differences in living standards.

Table 2.1 provides a concrete illustration of the impact of technology evolution on living standards in the U.S. during the 20th century. The first column shows the labor time required by an average worker to earn enough to purchase the specified product in 1895, while the second column shows the amount of time required in 2000. To facilitate comparison the third column shows the ratio of these two figures—the larger the ratio the greater the increase in labor productivity (and purchasing power) that has taken place.

The data in Table 2.1 suggest several important points about the effects of technology evolution. First, the quantity of goods that the average worker can consume has increased dramatically. This is reflected in column 3 which shows the proportionate increase in the quantity of each item that can be purchased with an hour of labor time. The median increase ...

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