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Micro data and macro technology

  • Ezra Oberfield
  • Devesh Raval

We study the implications of microeconomic heterogeneity for aggregate technology, showing that the aggregate elasticity of substitution between capital and labor can be expressed as a simple function of plant level structural parameters and sufficient statistics for plant heterogeneity. This allows for a new approach to estimating the aggregate elasticity using microeconomic data and allows us to examine how the aggregate elasticity varies over time or across countries. We then use plant level data from the Census of Manufactures to construct an aggregate elasticity of substitution for the manufacturing sector, and estimate an aggregate elasticity of approximately 0.72 in 1987. We find that the aggregate elasticity has risen over time in the US and is higher in less developed countries. These differences are quantitatively important; our estimates imply that a change in the interest rate has a 50 percent larger impact on India than the US. Finally, we measure the bias of aggregate technical change using our estimates of the aggregate elasticity, and find that the bias of technical change has increased in recent years.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2012-11.

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Date of creation: 2012
Date of revision:
Handle: RePEc:fip:fedhwp:wp-2012-11
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  1. John G. Fernald, 2012. "A quarterly, utilization-adjusted series on total factor productivity," Working Paper Series 2012-19, Federal Reserve Bank of San Francisco.
  2. Ricardo Lagos, 2006. "A Model of TFP," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 983-1007.
  3. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
  4. Barnes, Sebastian & Price, Simon & Sebastia Barriel, Maria, 2008. "The elasticity of substitution: evidence from a UK firm-level data set," Bank of England working papers 348, Bank of England.
  5. Enghin Atalay, 2014. "How Important Are Sectoral Shocks," Working Papers 14-31, Center for Economic Studies, U.S. Census Bureau.
  6. Daniel Aaronson & Daniel G. Sullivan, 2001. "Growth in worker quality," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 53-74.
  7. Thomas J. Holmes & John J. Stevens, 2010. "An alternative theory of the plant size distribution with an application to trade," Staff Report 445, Federal Reserve Bank of Minneapolis.
  8. Herrendorf, Berthold & Herrington, Christopher & Valentinyi, Akos, 2013. "Sectoral Technology and Structural Transformation," CEPR Discussion Papers 9386, C.E.P.R. Discussion Papers.
  9. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-68, October.
  10. León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2009. "Identifying the elasticity of substitution with biased technical change," Working Paper Series 1001, European Central Bank.
  11. 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.
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  13. Miyagiwa, Kaz & Papageorgiou, Chris, 2007. "Endogenous aggregate elasticity of substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 2899-2919, September.
  14. Paul Gomme & Peter Rupert, 2004. "Measuring labor’s share of income," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Nov.
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  17. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, December.
  18. T. Kirk White & Jerome P. Reiter & Amil Petrin, 2012. "Plant-level Productivity and Imputation of Missing Data in U.S. Census Manufacturing Data," NBER Working Papers 17816, National Bureau of Economic Research, Inc.
  19. Chirinko, Robert S., 2008. "[sigma]: The long and short of it," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 671-686, June.
  20. Chamley, Christophe, 1981. "The Welfare Cost of Capital Income Taxation in a Growing Economy," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 468-96, June.
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  22. Michael Elsby & Bart Hobijn & Aysegül Sahin, 2013. "The decline of the U.S. labor share," Working Paper Series 2013-27, Federal Reserve Bank of San Francisco.
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  25. repec:ucp:bknber:9780226304557 is not listed on IDEAS
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