John Hicks and Progress

This section describes the types of technological progress and the impact of each on the productivity growth of a country’s labor force and capital.
John Hicks, a British economist, received the 1972 Nobel Prize in Economics for his work on the theory of progress. John Hicks formulated a theory that defined the types of technological advancement and their implications for capital and labor intensity (Exhibit 1-26).

Ex. 1‑26 John Hicks “impact of progress” in the context of other significant events

Keywords: progress, labour factor, capital

John Hicks identified three types of technological progress – capital-saving, labor-saving and neutral. Hicks explored the role of the capital (K) to labor (L) ratio in trade between countries, following on from the application of the Heckscher-Ohlin theorem (Exhibit 1-27). Labor-saving technical progress increases capital productivity in proportion to labor productivity since less labor is needed to do the same work. The K/L ratio therefore increases, and the product becomes more capital-intensive. This is because the product requires less labor input.
Capital-saving technical progress increases the productivity of labor in proportion to the productivity of capital. As a result, the K/L ratio decreases, or the L/K ratio increases, and the product becomes more labor-intensive. While the product may actually require less labor, it will require even less capital in relative terms. In this case, the ratio indicates an increase in the product’s labor intensity.
Certain products can now be produced with fewer L and K units but with a higher L/K ratio or lower K/L. Neutral technical progress increases the productivity of labor L and capital K in the same proportion so that K/L remains the same after neutral technical progress as it was before at unchanged relative resource prices.

Ex. 1‑27 Different types of progress and their impact on the capital-labour intensity ratio

Keywords: capital saving, labour saving

Empirical research by Hicks has shown that most of the increase in income per capita in industrialized countries is due to technical progress and much less to capital accumulation (Hicks 1932). However, the analysis of technical progress is much more complex than the analysis of resource accumulation, as there are several definitions and types of technical progress, and they can occur at different rates in the production of goods.

Share or comment this information on your social media: