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Why labor income shares seem to be constant?

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  • Hernando Zuleta

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.

Suggested Citation

  • Hernando Zuleta, 2007. "Why labor income shares seem to be constant?," Documentos de Trabajo 3779, Universidad del Rosario.
    • Handle: RePEc:col:000092:003779
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    References listed on IDEAS

    as
    1. Boldrin, Michele & Levine, David K., 2002. "Factor Saving Innovation," Journal of Economic Theory, Elsevier, vol. 105(1), pages 18-41, July.
    2. Alan Krueger, 1999. "Measuring Labor's Share," Working Papers 792, Princeton University, Department of Economics, Industrial Relations Section..
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    7. 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.
    8. Nicholas Kaldor, 1961. "Capital Accumulation and Economic Growth," International Economic Association Series, in: D. C. Hague (ed.), The Theory of Capital, chapter 0, pages 177-222, Palgrave Macmillan.
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    Citations

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    Cited by:

    1. Alberto Alesina & Michele Battisti & Joseph Zeira, 2018. "Technology and labor regulations: theory and evidence," Journal of Economic Growth, Springer, vol. 23(1), pages 41-78, March.
    2. Zuleta, Hernando, 2009. "If factor shares are not constant then we have a measurment problem. can we solve it?," Documentos de Trabajo 5744, Universidad del Rosario.
    3. Carolina Arteaga Cabrales, 2011. "Human Capital Externalities and Growth," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 29(66), pages 12-47, December.
    4. Zeira, Joseph, 2005. "Machines as Engines of Growth," CEPR Discussion Papers 5429, C.E.P.R. Discussion Papers.
    5. Alberto Alesina & Joseph Zeira, 2006. "Technology and Labor Regulations," NBER Working Papers 12581, National Bureau of Economic Research, Inc.
    6. 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.
    7. repec:wvu:wpaper:10-01 is not listed on IDEAS
    8. Ajit Karnik & Mala Lalvani, 2012. "Growth performance of Indian states," Empirical Economics, Springer, vol. 42(1), pages 235-259, February.
    9. Zuleta, Hernando & Young, Andrew T., 2013. "Labor shares in a model of induced innovation," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 112-122.

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    More about this item

    Keywords

    Factor Income Shares; Elasticity of output with respect to factors; two sector model;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • F0 - International Economics - - General
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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