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Why labor income shares seem to be constant?

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  • Hernando Zuleta

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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 003779, 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, pages 18-41.
    2. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, pages 45-51.
    3. Gary D. Hansen & Edward C. Prescott, 2002. "Malthus to Solow," American Economic Review, American Economic Association, pages 1205-1217.
    4. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
    5. Boldrin, Michele & Levine, David K., 2002. "Factor Saving Innovation," Journal of Economic Theory, Elsevier, pages 18-41.
    6. 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.
    7. Gary D. Hansen & Edward C. Prescott, 2002. "Malthus to Solow," American Economic Review, American Economic Association, pages 1205-1217.
    8. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, pages 45-51.
    9. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, pages 458-474.
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    Citations

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    Cited by:

    1. Zuleta, Hernando, 2009. "If factor shares are not constant then we have a measurment problem. can we solve it?," DOCUMENTOS DE TRABAJO 005744, UNIVERSIDAD DEL ROSARIO.
    2. Joseph Zeira, 2006. "Machines as Engines of Growth," DEGIT Conference Papers c011_059, DEGIT, Dynamics, Economic Growth, and International Trade.
    3. Alberto Alesina & Joseph Zeira, 2006. "Technology and Labor Regulations," NBER Working Papers 12581, National Bureau of Economic Research, Inc.
    4. Alberto Alesina & Michele Battisti & Joseph Zeira, 2015. "Technology and Labor Regulations: Theory and Evidence," NBER Working Papers 20841, National Bureau of Economic Research, Inc.
    5. Carolina Arteaga Cabrales, 2011. "Human Capital Externalities and Growth," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 29(66), pages 12-47, Diciembre.
    6. Brad Sturgill, 2010. "Cross-country Variation in Factor Shares and its Implications for Development Accounting," DEGIT Conference Papers c015_014, DEGIT, Dynamics, Economic Growth, and International Trade.
    7. Danko Tarabar & Joshua C. Hall, 2015. "The Seventeenth Amendment, Senate ideology and the growth of government," Applied Economics Letters, Taylor & Francis Journals, pages 637-640.
    8. Ajit Karnik & Mala Lalvani, 2012. "Growth performance of Indian states," Empirical Economics, Springer, pages 235-259.
    9. 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.
    10. Ronald L. Goettler & Brett R. Gordon, 2011. "Does AMD Spur Intel to Innovate More?," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1141-1200.
    11. 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.
    12. Zeira, Joseph, 2005. "Machines as Engines of Growth," CEPR Discussion Papers 5429, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Factor Income Shares; Elasticity of output with respect to factors; two sector model;

    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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