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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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Web page: http://www.be.wvu.edu/phd_economics/
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  1. 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.
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  12. Vladimir Klyuev, 2004. "Evolution of the Relative Price of Goods and Services in a Neoclassical Model of Capital Accumulation," IMF Working Papers 04/207, International Monetary Fund.
  13. 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.
  14. 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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