Labor shares in a model of induced innovation

Hernando Zuleta, Andrew T. Young

Research output: Contribution to journalArticle

11 Scopus citations

Abstract

The relative stability of aggregate labor share constitutes one of the great macroeconomic ratios. However, relative stability at the aggregate level masks the unbalanced nature of sectoral labor shares. We present a two-sector (manufacturing and services) model with induced innovation that can rationalize these phenomena as well as several other empirical regularities of actual economies. Specifically, along the transition path (i) manufacturing becomes increasingly capital-intensive over time while (ii) there is an increase in the relative price and production share of services and (iii) aggregate labor share converges from above to a non-zero value. At the sectoral level (iv) labor share in manufacturing trends toward zero. Notably, (v) the model may transition to either a neoclassical steady-state or long-run endogenous growth, so it has the potential to account for a wide range of growth experiences.

Original languageEnglish
Pages (from-to)112-122
Number of pages11
JournalStructural Change and Economic Dynamics
Volume24
Issue number1
DOIs
StatePublished - Mar 1 2013

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Keywords

  • Biased technical change
  • Capital intensity
  • Development
  • Factor shares
  • Labor share

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