Steady state (macroeconomics)

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For other uses, see steady state (disambiguation).

The steady state is a condition of the economy in which output per worker (productivity of labour) and capital per worker (capital intensity) do not change over time. This is due to the rate of new capital production from invested savings exactly equaling the rate of existing capital depreciation. Exogenous growth models show how economies will naturally tend to a steady-state. The steady-state is generally associated with the Nobel Prize-winning economist Robert Solow, who created the Solow Model in 1956.

In an economy without technological progress, output and capital per worker are no longer changing. In an economy with technological progress, output and capital per effective worker are constantly changing.

One way to break out of a steady-state would be the (instant) adoption of new technology that improves marginal productivity, another would be the (instant) adoption of a lower-depreciation technology. These improvements would be represented as changes to the given variables in typical growth models. These macroeconomic models would predict the drift to a new steady state (tending to a static output per worker different from the original level).