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Predation, Labor Share and Development

  • Carlos Bethencourt
  • Fernando Perera-Tallo

This paper proposes a new mechanism based on the allocation of labor to help understand why differences among countries have remained stable. We formulate a neoclassical growth model in which agents devote time either to produce or to commit predation. Labor share is the key variable which determines in equilibrium the time devoted to each activity: an increase in the labor share raises the incentive to devote time to production and discourages predation. When the elasticity of substitution between labor and capital is lower than one, the labor share rises throughout the transition while the per capita capital is lower than the steady state level. This increase in the labor share reduces the incentive to predate and increases the incentive to work for production. Empirical evidence supports these results: low per capita income countries have larger portions of predation and present lower labor shares. The standard effects of an increase in the productivity are amplified by the indirect effects of productivity on the reallocation of labor from predation to production. Institutional improvements play a key role in reducing predation and increasing the level of per capita income.

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File URL: http://degit.sam.sdu.dk/papers/degit_16/c016_039.pdf
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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c016_039.

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Length: 30 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:deg:conpap:c016_039
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  1. Bentolila, Samuel & Saint-Paul, Gilles, 1998. "Explaining Movements in the Labour Share," CEPR Discussion Papers 1958, C.E.P.R. Discussion Papers.
  2. Rainer Klump & Peter McAdam & Alpo Willman, 2007. "Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 183-192, February.
  3. Sylvain Chassang & Gerard Padró i Miquel, 2010. "Savings and Predation," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 645-654, 04-05.
  4. Paul Maarek, 2012. "Labor share, Informal sector and Development," THEMA Working Papers 2012-34, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  5. Anderson, David A, 1999. "The Aggregate Burden of Crime," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 611-42, October.
  6. Herschel I. Grossman & Minseong Kim, 1996. "Inequality, Predation and Welfare," NBER Working Papers 5704, National Bureau of Economic Research, Inc.
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