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Labor's shares - aggregate and industry: accounting for both in a model of unbalanced growth with induced innovation

  • Hernando Zuleta

    ()

  • Andrew T. Young

    ()

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 industry labor's shares - the Kuznets stylized facts underlie those of Kaldor. We present a two-sector - one labor-only and the other using both capital and labor - model of unbalanced economic development with induced innovation that can rationalize these phenomena as well as several other empirical regularities of actual economies. Specifically, the model features (i) one sector ("goods" production) becoming increasingly capital-intensive over time; (ii) an increasing relative price and share in total output of the labor-only sector ("services"); and (iii) diverging sectoral labor's shares despite (iii) an aggregate labor's share that converges from above to a value between 0 and unity. Furthermore, the model (iv) supports either a neoclassical steady-state or long-run endogenous growth, giving it the potential to account for a wide range of real world development experiences.

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Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 003105.

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Length: 55
Date of creation: 01 Jan 2007
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Handle: RePEc:col:000092:003105
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