Productivity slowdown due to scarcity of capital to scrap in a putty-clay model

The conditions for a productivity slowdown to take place simultaneously wit h accelerated technical change are investigated in a simple putty-clay macr o model of the Johansen type. A capacity distribution such that the resulti ng supply curve is concave at the scrapping margin means a high likelihood of a reversed relation. The relation between growth rates of wages and outp ut is crucially dependent on the tail elasticity of the capacity distributi on. The need in a putty-clay economy to scrap in order to transfer labor to new investment is the key mechanism. The model emphasizes the decisive rol e of past investment in shaping the current relation between technical chan ge and productivity growth. (C) 2000 Elsevier Science S.A. All rights reser ved.