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

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

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  1. Boldrin, Michele & Levine, David K., 2002. "Factor Saving Innovation," Journal of Economic Theory, Elsevier, vol. 105(1), pages 18-41, July. [Downloadable!] (restricted)
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  2. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, vol. 89(2), pages 45-51, May. [Downloadable!] (restricted)
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  3. Hernando Zuleta, 2006. "Factor saving innovations and factor income shares," DOCUMENTOS DE TRABAJO 002706, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
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  4. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April. [Downloadable!] (restricted)
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  5. Gary D. Hansen & Edward C. Prescott, 1999. "Malthus to Solow," Staff Report 257, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  1. 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. [Downloadable!]
  2. Joseph Zeira, 2006. "Machines as Engines of Growth," DEGIT Conference Papers c011_059, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
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  3. Alberto Alesina & Joeph Zeira, . "Technology and Labor Regulations," Working Papers 0729, University of Crete, Department of Economics. [Downloadable!]
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  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 - FACULTAD DE ECONOMÍA. [Downloadable!]
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This page was last updated on 2009-11-18.

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