TY - JOUR
T1 - Labor's share fluctuations, biased technical change, and the business cycle
AU - Young, Andrew T.
N1 - Copyright:
Copyright 2004 Elsevier B.V., All rights reserved.
PY - 2004/10
Y1 - 2004/10
N2 - We extend the basic RBC model to allow for biased technical changes. One broad definition of biased technical changes is changes that directly affect factor elasticities. Given the link between changes in factor elasticities and factor shares, observed fluctuations in US labor's share are motivation for this study. We find that when the technology shock process is calibrated according to US labor's share dynamics, 93 percent of US GDP volatility is accounted for. The observed countercyclical nature of labor's share is accounted for, although the model correlation is too high. As well, the model exhibits business cycles that are qualitatively similar to those of the standard model with neutral technology shocks. These findings, while robust to the short-run properties of various measures of labor's share, are sensitive to the average labor's share used in calibration, e.g., departing from a baseline calibration value of 63 percent, for steady-state labor's shares of 50 percent and 70 percent the model accounts for 107 percent and 84 percent of US GDP volatility respectively.
AB - We extend the basic RBC model to allow for biased technical changes. One broad definition of biased technical changes is changes that directly affect factor elasticities. Given the link between changes in factor elasticities and factor shares, observed fluctuations in US labor's share are motivation for this study. We find that when the technology shock process is calibrated according to US labor's share dynamics, 93 percent of US GDP volatility is accounted for. The observed countercyclical nature of labor's share is accounted for, although the model correlation is too high. As well, the model exhibits business cycles that are qualitatively similar to those of the standard model with neutral technology shocks. These findings, while robust to the short-run properties of various measures of labor's share, are sensitive to the average labor's share used in calibration, e.g., departing from a baseline calibration value of 63 percent, for steady-state labor's shares of 50 percent and 70 percent the model accounts for 107 percent and 84 percent of US GDP volatility respectively.
KW - Biased technical change
KW - Business cycles
KW - Macroeconomics
KW - Real business cycle theory
UR - http://www.scopus.com/inward/record.url?scp=4544379896&partnerID=8YFLogxK
U2 - 10.1016/j.red.2004.07.001
DO - 10.1016/j.red.2004.07.001
M3 - Article
AN - SCOPUS:4544379896
VL - 7
SP - 916
EP - 931
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
SN - 1094-2025
IS - 4
ER -