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Labor shares in a model of induced innovation

  • Zuleta, Hernando
  • Young, Andrew T.

The relative stability of aggregate labor share constitutes one of the great macroeconomic ratios. However, relative stability at the aggregate level masks the unbalanced nature of sectoral labor 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 share converges from above to a non-zero value. At the sectoral level (iv) labor share in manufacturing trends toward 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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Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 24 (2013)
Issue (Month): C ()
Pages: 112-122

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Handle: RePEc:eee:streco:v:24:y:2013:i:c:p:112-122
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/525148

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  1. 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.
  2. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
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  5. 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.
  6. John Laitner, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 545-561.
  7. Roberto Torrini, 2005. "Profit Share and Returns on Capital Stock in Italy: the Role of Privatisations behind the Rise of the 1990s," CEP Discussion Papers dp0671, Centre for Economic Performance, LSE.
  8. Joseph Zeira, 1998. "Workers, Machines, and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1091-1117.
  9. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 1997. "Beyond Balanced Growth," NBER Working Papers 6159, National Bureau of Economic Research, Inc.
  10. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
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  12. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  13. 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.
  14. 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.
  15. Hernando Zuleta, 2007. "Why labor income shares seem to be constant?," DOCUMENTOS DE TRABAJO 003779, UNIVERSIDAD DEL ROSARIO.
  16. Michele Boldrin & David K. Levine, 2002. "Factor saving innovation," Staff Report 301, Federal Reserve Bank of Minneapolis.
  17. Robert Rowthorn & Ramana Ramaswamy, 1999. "Growth, Trade, and Deindustrialization," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 2.
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