Golden Rules for Wages
AbstractWe consider a decentralized version of the neoclassical growth model where labor share is chosen by workers to maximize their long run (permanent) wages. In this framework, if the labor share increases relative to the competitive share, workers capture a larger share of a smaller total income in the steady-state. This is because the incentives to invest are lower and the steady-state capital to labor ratio is lower. We find that the “Golden Rule” labor share is equal to the elasticity of output with respect to labor. This is precisely what would obtain under the assumption of competitive factor markets. We also consider the model with two classes of workers: organized and unorganized. In this case, organized labor may choose a higher than competitive share and the difference is economically significant for plausible parameter values. Furthermore, relative to the Cobb-Douglas case, organized labor chooses a higher share for the empirically relevant case of an elasticity of substitution less than unity. We also analyze versions of the model with endogenous skill acquisition and capitalists with bargaining power.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by UNIVERSIDAD DE LOS ANDES-CEDE in its series DOCUMENTOS CEDE with number 011887.
Date of creation: 01 Aug 2013
Date of revision:
Contact details of provider:
labor share; capital share; factor shares; trade unions; bargaining power; organized labor; political economy;
Other versions of this item:
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-07-21 (All new papers)
- NEP-DGE-2014-07-21 (Dynamic General Equilibrium)
- NEP-GRO-2014-07-21 (Economic Growth)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Samuel Bentolila & Gilles Saint Paul, 1999.
"Explaining movements in the labor share,"
Economics Working Papers
374, Department of Economics and Business, Universitat Pompeu Fabra.
- Bentolila, Samuel & Saint-Paul, Gilles, 1998. "Explaining Movements in the Labour Share," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1958, C.E.P.R. Discussion Papers.
- Bentollia, S. & Saint-Paul, G., 1999. "Explaining Movements in the Labor Share," Papers, Centro de Estudios Monetarios Y Financieros- 9905, Centro de Estudios Monetarios Y Financieros-.
- Rainer Klump & Peter McAdam & Alpo Willman, 2007. "Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 183-192, February.
- Hernando Zuleta, 2006.
"Factor saving innovations and factor income shares,"
DOCUMENTOS DE TRABAJO
002706, UNIVERSIDAD DEL ROSARIO.
- Hernando Zuleta, 2008. "Factor Saving Innovations and Factor Income Shares," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 836-851, October.
- John DiNardo & Nicole M. Fortin & Thomas Lemieux, 1995.
"Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach,"
NBER Working Papers
5093, National Bureau of Economic Research, Inc.
- DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, Econometric Society, vol. 64(5), pages 1001-44, September.
- Nidardo, J. & Fortin, N. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Papers, California Irvine - School of Social Sciences 93-94-15, California Irvine - School of Social Sciences.
- Dinardo, J. & Fortin, N.M. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: a Semiparametric Approach," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9406, Universite de Montreal, Departement de sciences economiques.
- Dinardo, J. & Fortin, N.M. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Cahiers de recherche, Centre interuniversitaire de recherche en Ã©conomie quantitative, CIREQ 9406, Centre interuniversitaire de recherche en Ã©conomie quantitative, CIREQ.
- Joseph Zeira, 2006.
"Machines as Engines of Growth,"
DEGIT Conference Papers
c011_059, DEGIT, Dynamics, Economic Growth, and International Trade.
- Zeira, Joseph, 2005. "Machines as Engines of Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5429, C.E.P.R. Discussion Papers.
- Henley, Andrew, 1987.
"Trades unions, market concentration and income distribution in United States manufacturing industry,"
International Journal of Industrial Organization, Elsevier,
Elsevier, vol. 5(2), pages 193-210.
- Henley, Andrew, 1984. "Trade Unions, Market Concentration and Income Distribution in United States Manufacturing Industry," The Warwick Economics Research Paper Series (TWERPS) 255, University of Warwick, Department of Economics.
- Toke Skovsgaard Aidt & Vania Sena, 2005. "Unions: Rent Creators or Extractors?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 103-121, 03.
- McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
- Pietro Peretto & John J. Seater, 2006. "Augmentation or Elimination?," DEGIT Conference Papers c011_060, DEGIT, Dynamics, Economic Growth, and International Trade.
- Nicole M. Fortin & Thomas Lemieux, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 75-96, Spring.
- Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 957-79, July.
- Hernando Zuleta & Andrew T. Young, 2011. "Do Unions Increase Laborâ€™s Shares? Evidence from US Industry-Level Data," Working Papers 10-06, Department of Economics, West Virginia University.
- Lancaster, Kelvin, 1973. "The Dynamic Inefficiency of Capitalism," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(5), pages 1092-1109, Sept.-Oct.
- Norbert Berthold & Rainer Fehn & Eric Thode, 2002. "Falling Labor Share and Rising Unemployment: Long-Run Consequences of Institutional Shocks?," German Economic Review, Verein fÃ¼r Socialpolitik, Verein fÃ¼r Socialpolitik, vol. 3(4), pages 431-459, November.
- Anastasia Guscina, 2006. "Effects of Globalizationon Labor's Share in National Income," IMF Working Papers 06/294, International Monetary Fund.
- Hirsch, Barry, 2007.
"Sluggish Institutions in a Dynamic World: Can Unions and Industrial Competition Coexist?,"
IZA Discussion Papers
2930, Institute for the Study of Labor (IZA).
- Barry T. Hirsch, 2008. "Sluggish Institutions in a Dynamic World: Can Unions and Industrial Competition Coexist?," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 153-176, Winter.
- Kaitala, Veijo & Pohjola, Matti, 1990. "Economic Development and Agreeable Redistribution in Capitalism: Efficient Game Equilibria in a Two-Class Neoclassical Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 421-38, May.
- Richard B. Freeman & James L. Medoff, 1979. "The Two Faces of Unionism," NBER Working Papers 0364, National Bureau of Economic Research, Inc.
- Bental, Benjamin & Demougin, Dominique, 2010. "Declining labor shares and bargaining power: An institutional explanation," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(1), pages 443-456, March.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Universidad De Los Andes-Cede).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.