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The Cyclical Behavior of Factor Shares

Author

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  • Michele Boldrin

    (Washington University in St Louis)

  • Lijun Zhu

    (Peking University)

  • Yong Wang

Abstract

We review the empirical evidence about factor shares and show that, apart from a varying trend, they are characterized by a strong and persistent cyclical behavior. We argue that existing models of the business cycles cannot replicate these facts. Next we study a model of growth and innovation under competitive conditions. Firms choose how many workers to hire, how much to invest, and which production technique to use. New productive capacity, embodying labor saving techniques, is costly. Central to our theory are endogenous movements in relative factor prices creating incentives for replacing old technologies with new ones. The endogenous interaction between labor-saving innovations and changes in the relative price of labor is the source of both growth and cycles .

Suggested Citation

  • Michele Boldrin & Lijun Zhu & Yong Wang, 2019. "The Cyclical Behavior of Factor Shares," 2019 Meeting Papers 1208, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1208
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    References listed on IDEAS

    as
    1. Boldrin, Michael & Horvath, Michael, 1995. "Labor Contracts and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 972-1004, October.
    2. Steve Ambler & Emanuela Cardia, 1998. "The Cyclical Behaviour of Wages and Profits under Imperfect Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 148-164, February.
    3. Boldrin, Michele & Levine, David K., 2002. "Factor Saving Innovation," Journal of Economic Theory, Elsevier, vol. 105(1), pages 18-41, July.
    4. Gomme, Paul & Greenwood, Jeremy, 1995. "On the cyclical allocation of risk," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 91-124.
    5. Andrew Young, 2004. "Labor's Share Fluctuations, Biased Technical Change, and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 916-931, October.
    6. J. B. Taylor & M. Woodford (ed.), 1999. "Handbook of Macroeconomics," Handbook of Macroeconomics, Elsevier, edition 1, volume 1, number 1.
    7. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
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    Cited by:

    1. Rada, Codrina & Tavani, Daniele & von Arnim, Rudiger & Zamparelli, Luca, 2023. "Classical and Keynesian models of inequality and stagnation," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 442-461.
    2. Tonni, Lorenzo, 2023. "Business cycle and factor income shares: a VAR sign restrictions approach," MPRA Paper 116527, University Library of Munich, Germany.
    3. Tonni, Lorenzo, 2022. "Business cycle and factor income shares: a VAR sign restriction approach," MPRA Paper 114586, University Library of Munich, Germany.

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