Labor Shares in a Model of Induced Innovation

Hernando Zuleta, Andrew Young

Research output: Contribution to journalArticle

Abstract

The relative stability of aggregate labo's share constitutes one of the great macroeconomic ratios. However, relative stability at the aggregate level masks the unbalanced nature of sectoral labor's 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's share converges from above to a non-zero value. At the sectoral level (iv) labor’s share in manufacturing trends towards zero.
Original languageEnglish
JournalStructural Change and Economic Dynamics
StatePublished - Mar 2013

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