For instance, all attempts to measure scientific progress through productivity come up against a timing problem: the innovation does not happen at the same time as it is adopted.
Relevant footnote:
Comin, Diego, Bart Hobijn, and Emilie Rovito. Five facts you need to know about technology diffusion. No. w11928. National Bureau of Economic Research, 2006.
Undervalues enhancements to labor, capital, or land:
many scientific advances work through enabling a greater supply of labor, capital, and land, and those advances will be undervalued by a TFP metric. Let’s say someone invents a useful painkiller, and that makes it easier for many people to show up to work and be productive. Output will rise, yet that advance will show up as an increase in labor supply, rather than as an increase in technology or scientific knowledge.
Some ideas are counted as capital:
The more general problem is that many scientific and technological advances are embodied in concrete capital goods.
Some ideas are counted as labor:
If a worker generates and carries forward a new scientific idea for producing more with a given amount of labor, that measures the same way as the worker being taught greater conscientiousness and producing more.
It is not clear how consistent this is:
In defense of TFP measures, these problems are not always so serious if these biases are roughly constant over time. In that case, changes in TFP still would reflect changes in the rate of progress of science and technology. The absolute level of TFP could be biased by capital-embodied and labor-embodied technical change, but over time, for comparisons, the expected sign of that bias might be close to zero. Still, it is not obvious that the rate embodiment of new ideas into capital and labor, in percentage terms, should be constant over time.
Problems with the TFP:
Timing:
Relevant footnote:
Undervalues enhancements to labor, capital, or land:
Some ideas are counted as capital:
Some ideas are counted as labor:
It is not clear how consistent this is: