"A Theory of Production" The Estimation of the Cobb-Douglas Function: A Retrospective View

Abstract

The Cobb-Douglas production function is still today the most ubiquitous form in theoretical and empirical analyses of growth and productivity. The estimation of the parameters of aggregate production functions is central to much of today's work on growth, technological change, productivity, and labor. This paper has taken up Samuelson's [1979] invitation to verify empirically his claim that all the regression of the Cobb-Douglas [1928] production function does is to reproduce the income accounting identity according to which value added equals the sum of the wage bill plus total profits. This paper concludes that Samuelson was right, and believes that this argument has very serious implications for today's work in macroeconomics.