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Labor’s Shares in a Model of Induced Innovation

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  • Hernando Zuleta

    (Department of Economics, Universidad del Rosario American University in Bulgaria)

  • Andrew T. Young

    (Department of Economics, West Virginia University)

Abstract

The relative stability of aggregate labor's share constitutes one of the great macroeconomic ratios. However, relative stability at the aggregate level masks the unbalanced nature of sectoral labor's shares. We present a two-sector (manufacturing and services) model with induced innovation that can rationalize these phenomena as well as several other empirical regularities of actual economies. Specifically, along the transition path (i) manufacturing becomes increasingly capital-intensive over time while (ii) there is an increase in the relative price and production share of services and (iii) aggregate labor's share converges from above to a non-zero value. At the sectoral level (iv) labor’s share in manufacturing trends towards zero. Notably, (v) the model may transition to either a neoclassical steady-state or long-run endogenous growth, so it has the potential to account for a wide range of growth experiences.

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File URL: http://www.be.wvu.edu/phd_economics/pdf/10-01.pdf
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Bibliographic Info

Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 10-01.

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Length: 40 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:wvu:wpaper:10-01

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Web page: http://www.be.wvu.edu/phd_economics/
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Keywords: Labor's Share; Factor Shares; Development; Biased Technical Change; Capital Intensity;

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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. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
  3. Hernando Zuleta, 2007. "Why labor income shares seem to be constant?," DOCUMENTOS DE TRABAJO 003779, UNIVERSIDAD DEL ROSARIO.
  4. Laitner, John, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 545-61, July.
  5. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October.
  6. Kiminori Matsuyama, 1990. "Agricultural Productivity, Comparative Advantage, and Economic Growth," Discussion Papers 934, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  8. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," Department of Economics Working Papers 2002-09, Department of Economics, Williams College.
  9. repec:fth:stanho:e-92-3 is not listed on IDEAS
  10. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 1997. "Beyond Balanced Growth," NBER Working Papers 6159, National Bureau of Economic Research, Inc.
  11. Ngai, Liwa Rachel & Pissarides, Christopher, 2004. "Structural Change in a Multi-Sector Model of Growth," CEPR Discussion Papers 4763, C.E.P.R. Discussion Papers.
  12. Joseph Zeira, 1998. "Workers, Machines, And Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1091-1117, November.
  13. Hernando Zuleta, 2006. "Factor saving innovations and factor income shares," DOCUMENTOS DE TRABAJO 002706, UNIVERSIDAD DEL ROSARIO.
  14. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  15. Vladimir Klyuev, 2005. "Evolution of the Relative Price of Goods and Services in a Neoclassical Model of Capital Accumulation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 720-730, July.
  16. Robert Rowthorn & Ramana Ramaswamy, 1999. "Growth, Trade, and Deindustrialization," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 2.
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Cited by:
  1. Jean-François FAGNART & Marc GERMAIN & Alphonse MAGNUS, 2013. "Soutenabilité forte, rente et partage de la valeur ajoutée," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2013021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Marion Davin & Karine Gente & Carine Nourry, 2013. "Should a Country Invest more in Human or Physical Capital? A Two-Sector Endogenous Growth Approach," AMSE Working Papers 1330, Aix-Marseille School of Economics, Marseille, France, revised May 2013.

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