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Why labor income shares seem to be constant?

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  • Hernando Zuleta

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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 various theoretical reasons 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. We propose an explanation for why labor income share has no correlation with income per capita: the existence of a labor intensive sector which produces non tradable goods.

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Bibliographic Info

Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 003779.

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Length: 14
Date of creation: 01 Mar 2007
Date of revision:
Handle: RePEc:col:000092:003779

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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, 2001. "Factor Saving Innovation," Levine's Working Paper Archive 625018000000000088, David K. Levine.
  2. 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.
  3. Alan Krueger, 1999. "Measuring Labor's Share," Working Papers 792, Princeton University, Department of Economics, Industrial Relations Section..
  4. Gary D. Hansen & Edward C. Prescott, 2002. "Malthus to Solow," American Economic Review, American Economic Association, vol. 92(4), pages 1205-1217, September.
  5. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
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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. Brad Sturgill, 2010. "Cross-country Variation in Factor Shares and its Implications for Development Accounting," DEGIT Conference Papers c015_014, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Joseph Zeira, 2006. "Machines as Engines of Growth," DEGIT Conference Papers c011_059, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. 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.
  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. Alberto Alesina & Joeph Zeira, . "Technology and Labor Regulations," Working Papers 0729, University of Crete, Department of Economics.
  7. Ajit Karnik & Mala Lalvani, 2012. "Growth performance of Indian states," Empirical Economics, Springer, vol. 42(1), pages 235-259, February.
  8. 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.

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