Regulation of the functional income distribution in German agriculture: A neoclassical approach

Summary In neoclassical terms, the rate of change in the relative share of labour depends on the bias of technical change, the size of the elasticity of substitution, the direction of change of the capital-labour ratio and on the size of the elasticity of production. Using time series data, a neoclassical CES-production model proved to apply to German agriculture. It can be shown that the elasticity of substitution is higher than 1.47 and that technical progress is capital-using. This analysis of the determinants of the sectoral flexibility of production is required for a rational agricultural policy. Given actual production relationships and observed migration rates, this objective cannot be realised. Because the forces generating movement of labour out of agriculture are mostly characterised by nonagricultural determinants, further research should investigate whether the development of labour-using technical innovations would be an appropriate instrument for reducing the functional income disparity in German agriculture.