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Why labor income shares seem to be constant?

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  • Hernando Zuleta

Abstract

The common assumptions that labor income share does not change over time or across countries and that factor income shares are equal to the elasticity of output with respect to factors have had important implications for economic theory. However, there are several theoretical reasons for why the elasticity of output with respect to reproducible factors should be correlated with the stage of development. In particular, the behavior of international trade and capital flows and the existence of factor saving innovations imply such a correlation. If this correlation exists and if factor income shares are equal to the elasticity of output with respect to factors then the labor income share must be negatively correlated with the stage of development. The existence of a labor intensive sector that produces non-tradable goods would explain why labor income share has no correlation with income per capita.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 16 (2007)
Issue (Month): 4 ()
Pages: 551-557

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Handle: RePEc:taf:jitecd:v:16:y:2007:i:4:p:551-557

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Related research

Keywords: Factor income shares; elasticity of output with respect to factors; two sector model;

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References

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  1. Michele Boldrin & David K. Levine, 2002. "Factor saving innovation," Staff Report 301, Federal Reserve Bank of Minneapolis.
  2. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, vol. 89(2), pages 45-51, May.
  3. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  4. Hernando Zuleta, 2006. "Factor saving innovations and factor income shares," DOCUMENTOS DE TRABAJO 002706, UNIVERSIDAD DEL ROSARIO.
  5. Gary D. Hansen & Edward C. Prescott, 1999. "Malthus to Solow," Staff Report 257, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Carolina Arteaga Cabrales, 2011. "Human Capital Externalities and Growth," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  2. Joseph Zeira, 2006. "Machines as Engines of Growth," DEGIT Conference Papers c011_059, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Brad Sturgill, 2009. "Cross-country Variation in Factor Shares and its Implications for Development Accounting," Working Papers 09-07, Department of Economics, Appalachian State University.
  4. Zuleta, Hernando, 2009. "If factor shares are not constant then we have a measurment problem. can we solve it?," DOCUMENTOS DE TRABAJO 005744, UNIVERSIDAD DEL ROSARIO.
  5. Hernando Zuleta & Andrew T. Young, 2010. "Labor’s Shares in a Model of Induced Innovation," Working Papers 10-01, Department of Economics, West Virginia University.
  6. Hernando Zuleta & Julián Parada & Andrés García & Jacobo Campo, 2010. "Participación factorial y contabilidad del crecimiento económico en Colombia .Una propuesta de modificación del método de contabilidad del crecimiento," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  7. Ajit Karnik & Mala Lalvani, 2012. "Growth performance of Indian states," Empirical Economics, Springer, vol. 42(1), pages 235-259, February.
  8. Alberto Alesina & Joeph Zeira, . "Technology and Labor Regulations," Working Papers 0729, University of Crete, Department of Economics.

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