June 1, 2005
This paper presents an index of capital per hour constructed using the assumption of putty-clay capital. That index is based on an aggregate putty-clay production function that both preserves the desirable empirical properties of putty-clay models and yields a closed-form solution for aggregate investment as a function of aggregate variables. The key to the production function is an index of capital per hour that is a logarithmic average of the ratios of capital to labor embodied in each unit of capital. That index separates out the capital-deepening portion of investment (more capital per worker) from the capital-broadening portion (more capital to employ more workers). The capital-deepening portion is identified using the cost of capital. The putty-clay index of capital per worker shows stronger growth during 2001-2004 than a putty-putty index, making the unusually strong growth of labor productivity during that period somewhat less of a puzzle.