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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. Michele Boldrin & David K Levine, 2001. "Factor Saving Innovation," Levine's Working Paper Archive 625018000000000088, David K. Levine.
  2. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," American Economic Review, American Economic Association, vol. 92(2), pages 160-164, May.
  3. Kongsamut, Piyabha & Rebelo, Sérgio & Xie, Danyang, 1997. "Beyond Balanced Growth," CEPR Discussion Papers 1693, C.E.P.R. Discussion Papers.
  4. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October.
  5. 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.
  6. 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.
  7. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  8. Laitner, John, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 545-61, July.
  9. Roberto Torrini, 2005. "Profit Share and Returns on Capital Stock in Italy: the Role of Privatisations behind the Rise of the 1990s," CEP Discussion Papers dp0671, Centre for Economic Performance, LSE.
  10. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
  11. Hernando Zuleta, 2006. "Factor saving innovations and factor income shares," DOCUMENTOS DE TRABAJO 002706, UNIVERSIDAD DEL ROSARIO.
  12. 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.
  13. Robert Rowthorn & Ramana Ramaswamy, 1999. "Growth, Trade, and Deindustrialization," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 2.
  14. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  15. Hernando Zuleta, 2007. "Why labor income shares seem to be constant?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 16(4), pages 551-557.
  16. Zeira, Joseph, 1995. "Workers, Machines and Economic Growth," CEPR Discussion Papers 1139, C.E.P.R. Discussion Papers.
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