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Appropriate Technology and the Labour Share

Listed author(s):
  • Miguel A. Leon-Ledesma

    ()

  • Mathan Satchi

    ()

We provide a general theoretical characterization of how technology choice affects the long-run elasticity of substitution between capital and labour. While the shape of the technology frontier determines the long-run growth path and the long-run elasticity, adjustment costs in technology choice allow capital labour complementarity in the short run. We develop a class of production functions that are consistent with balanced growth even in the presence of permanent investment-specific or other kinds of biased technical progress but where, consistent with empirical evidence, short-run dynamics are characterized by complementarity. Importantly, the approach is easily implementable and yields a powerful way to introduce CES-type production functions in macroeconomic models. We provide an illustration within an estimated dynamic general equilibrium model and show that the use of the new production technology provides a good match for the short and medium run behavior of the US labour share.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/1505.pdf
File Function: First version, 2015
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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/1614.pdf
File Function: Revised version, 2016
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Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 1505.

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Date of creation: Mar 2015
Date of revision: Nov 2016
Handle: RePEc:ukc:ukcedp:1505
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School of Economics, University of Kent, Canterbury, Kent, CT2 7NP

Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/

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  2. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 2000. "The role of investment-specific technological change in the business cycle," European Economic Review, Elsevier, vol. 44(1), pages 91-115, January.
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  4. Cristiano Cantore & Miguel León-Ledesma & Peter McAdam & Alpo Willman, 2014. "Shocking Stuff: Technology, Hours, And Factor Substitution," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 108-128, 02.
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  8. Miguel A León-Ledesma & Peter McAdam & Alpo Willman, 2012. "Non-Balanced Growth and Production Technology Estimation," Studies in Economics 1204, School of Economics, University of Kent.
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  13. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June.
  14. Daron Acemoglu & Fabrizio Zilibotti, 2001. "Productivity Differences," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 563-606.
  15. Paul Beaudry, 2005. "Innis Lecture: Explorations in medium-run macroeconomics," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1136-1159, November.
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  17. Miguel A. Leon-Ledesma & Mathan Satchi, 2011. "The Choice of CES Production Techniques and Balanced Growth," Studies in Economics 1113, School of Economics, University of Kent.
  18. Raj Chetty, 2012. "Bounds on Elasticities With Optimization Frictions: A Synthesis of Micro and Macro Evidence on Labor Supply," Econometrica, Econometric Society, vol. 80(3), pages 969-1018, 05.
  19. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, December.
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  23. Benjamin Bridgman, 2014. "Is Labor's Loss Capital's Gain? Gross versus Net Labor Shares," BEA Working Papers 0114, Bureau of Economic Analysis.
  24. Charles I. Jones, 2005. "The Shape of Production Functions and the Direction of Technical Change," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 517-549.
  25. Chirinko, Robert S., 2002. "Corporate Taxation, Capital Formation,and the Substitution Elasticity Between Labor and Capital," National Tax Journal, National Tax Association, vol. 55(2), pages 339-355, June.
  26. Charles I. Jones & Dean Scrimgeour, 2008. "A New Proof of Uzawa's Steady-State Growth Theorem," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 180-182, February.
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  28. Growiec, Jakub, 2013. "A microfoundation for normalized CES production functions with factor-augmenting technical change," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2336-2350.
  29. Jakub Growiec, 2008. "A new class of production functions and an argument against purely labor-augmenting technical change," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(4), pages 483-502.
  30. Odran Bonnet & Pierre-Henri Bono & Guillaume Chapelle & Etienne Wasmer, 2014. "Does housing capital contribute to inequality? A comment on Thomas Piketty’s Capital in the 21st Century," Sciences Po Economics Discussion Papers 2014-07, Sciences Po Departement of Economics.
  31. 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.
  32. Chirinko, Robert S., 2008. "[sigma]: The long and short of it," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 671-686, June.
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