BPEA | 1998: Microeconomics

Capital’s Contribution to Productivity and the Nature of Competition

Axel Borsch-Supan
headshot of Axel Börsch-Supan
Axel Borsch-Supan Director - Max Planck Institute for Social Law and Social Policy

Microeconomics 1998

PRODUCTIVITY RESEARCH has traditionally focused on labor productivity and treated capital intensity as one of the factors causing different levels of labor productivity. Much less attention has been given to the efficiency of capital management and purchase decisions. High capital intensity may be not only an implication of high labor costs relative to capital, but also a consequence of wasteful allocation of capital. This paper investigates whether the utilization of installed capital is different across the three largest economies of the world-Germany, Japan, and the United States-and if so, why. It also asks whether the amount of assets needed to produce a particular level of productive capacity differs across these three countries, and if so, what the reasons for the difference might be.