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Why labor income shares seem to be constant?

  • Hernando Zuleta

    ()

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.

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Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 003779.

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Length: 14
Date of creation: 01 Mar 2007
Date of revision:
Handle: RePEc:col:000092:003779
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  1. Gary D. Hansen & Edward C. Prescott, 1998. "Malthus to Solow," NBER Working Papers 6858, National Bureau of Economic Research, Inc.
  2. Boldrin, Michele & Levine, David, 2002. "Factor Saving Innovation," CEPR Discussion Papers 3262, C.E.P.R. Discussion Papers.
  3. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, vol. 89(2), pages 45-51, May.
  4. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  5. 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.
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