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Non-neutral technology, firm heterogeneity, and labor demand

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  • Zhang, Hongsong

Abstract

In firm-level panel data, labor share exhibits large cross-sectional differences and a declining trend over time. This study examines the role of non-Hicks neutral technology differences across firms and over time in explaining these patterns. The non-Hicks neutral technology allows for differential factor-augmenting efficiencies for capital, labor, and material, and it has direct implications on labor shares. Estimated using firm-level production data and variation in input prices, evidence from the Chinese steel industry affirms the large heterogeneity of the non-Hicks neutral technology across firms, and its change over time is also highly non-Hicks neutral toward saving labor. The non-Hicks neutral technology explains over 50 percent of the 5.01-percentage points decline in labor share in the sample period, mainly due to the evolution of heterogeneous non-Hicks neutral technology and the resulting reallocation effect.

Suggested Citation

  • Zhang, Hongsong, 2019. "Non-neutral technology, firm heterogeneity, and labor demand," Journal of Development Economics, Elsevier, vol. 140(C), pages 145-168.
    • Handle: RePEc:eee:deveco:v:140:y:2019:i:c:p:145-168
    DOI: 10.1016/j.jdeveco.2019.06.001
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    3. Shoki Kusaka & Tetsuji Okazaki & Ken Onishi & Naoki Wakamori, 2022. "The Decline of Labor Share and New Technology Diffusion: Implications forMarkups andMonopsony Power," CIRJE F-Series CIRJE-F-1208, CIRJE, Faculty of Economics, University of Tokyo.
    4. Ka Kei Gary Wong & Min Qiang Zhao, 2023. "Induced innovation and its impact on productivity growth in China: a latent variable approach," Empirical Economics, Springer, vol. 65(1), pages 371-399, July.
    5. Qizheng Gao & Jianqing Zhang & Guo Chen, 2023. "Firm heterogeneity, biased technological change, and total factor productivity: Evidence from China," Journal of Productivity Analysis, Springer, vol. 60(2), pages 147-177, October.
    6. Raval, Devesh, 2023. "A flexible cost share approach to markup estimation," Economics Letters, Elsevier, vol. 230(C).
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    8. Emir Malikov & Shunan Zhao & Jingfang Zhang, 2023. "A System Approach to Structural Identification of Production Functions with Multi-Dimensional Productivity," Papers 2302.13429, arXiv.org.

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    More about this item

    Keywords

    Declining labor share; Labor share heterogeneity; Non-Hicks neutral technology; Firm heterogeneity; Chinese steel industry;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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