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Labor’s Shares in a Model of Induced Innovation

  • Hernando Zuleta

    (Department of Economics, Universidad del Rosario American University in Bulgaria)

  • Andrew T. Young

    (Department of Economics, West Virginia University)

The relative stability of aggregate labor's share constitutes one of the great macroeconomic ratios. However, relative stability at the aggregate level masks the unbalanced nature of sectoral labor's shares. We present a two-sector (manufacturing and services) model with induced innovation that can rationalize these phenomena as well as several other empirical regularities of actual economies. Specifically, along the transition path (i) manufacturing becomes increasingly capital-intensive over time while (ii) there is an increase in the relative price and production share of services and (iii) aggregate labor's share converges from above to a non-zero value. At the sectoral level (iv) labor’s share in manufacturing trends towards zero. Notably, (v) the model may transition to either a neoclassical steady-state or long-run endogenous growth, so it has the potential to account for a wide range of growth experiences.

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File URL: http://www.be.wvu.edu/phd_economics/pdf/10-01.pdf
File Function: First version, 2010
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Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 10-01.

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Length: 40 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:wvu:wpaper:10-01
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  1. Vladimir Klyuev, 2005. "Evolution of the Relative Price of Goods and Services in a Neoclassical Model of Capital Accumulation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 720-730, July.
  2. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," Center for Development Economics 2002-09, Department of Economics, Williams College.
  3. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 1997. "Beyond Balanced Growth," NBER Working Papers 6159, National Bureau of Economic Research, Inc.
  4. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  5. Ngai, Liwa Rachel & Pissarides, Christopher, 2004. "Structural Change in a Multi-Sector Model of Growth," CEPR Discussion Papers 4763, C.E.P.R. Discussion Papers.
  6. Michele Boldrin & David K. Levine, 2002. "Factor saving innovation," Staff Report 301, Federal Reserve Bank of Minneapolis.
  7. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1988. "Industrialization and the Big Push," NBER Working Papers 2708, National Bureau of Economic Research, Inc.
  8. Kiminori Matsuyama, 1990. "Agricultural Productivity, Comparative Advantage, and Economic Growth," Discussion Papers 934, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  10. Roberto Torrini, 2005. "Profit share and returns on capital stock in Italy: the role of privatisations behind the rise of the 1990s," LSE Research Online Documents on Economics 19915, London School of Economics and Political Science, LSE Library.
  11. Robert Rowthorn & Ramana Ramaswamy, 1999. "Growth, Trade, and Deindustrialization," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 2.
  12. Hernando Zuleta, 2007. "Why labor income shares seem to be constant?," DOCUMENTOS DE TRABAJO 003779, UNIVERSIDAD DEL ROSARIO.
  13. Laitner, John, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 545-61, July.
  14. Joseph Zeira, 1998. "Workers, Machines, And Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1091-1117, November.
  15. Hernando Zuleta, 2006. "Factor saving innovations and factor income shares," DOCUMENTOS DE TRABAJO 002706, UNIVERSIDAD DEL ROSARIO.
  16. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
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