IDEAS home Printed from https://ideas.repec.org/p/wvu/wpaper/10-06.html
   My bibliography  Save this paper

US Elasticities of Substitution and Factor-Augmentation at the Industry Level

Author

Listed:
  • Andrew T. Young

    (Department of Economics, West Virginia University)

Abstract

We provide industry-level estimates of the elasticity of substitution (?) between capital and labor in the US economy. We also estimate rates of factor-augmentation. Aggregate estimates are produced using the same data. Our empirical model comes from the first-order conditions associated with a CES production function. Our data represents 35 industries at roughly the 2-digit SIC level from 1960 to 2005 and covers the entire US economy. We find that aggregate US ? is less than unity and perhaps less than 0.5.The same is likely true for the large majority of individual industries. We find no consistent and/or systematic evidence that aggregate ? is either greater or less than the value-added share-weighted average of industry ?s. Also, there is still considerable variation across the industry-level ? point estimates. Technical change in the aggregate appears to be net labor-augmenting. However, at the industry-level there is little evidence that the type of technical change is uniform across industries. For many individual industries, technical change may be characterized by net capital-augmentation.

Suggested Citation

  • Andrew T. Young, 2010. "US Elasticities of Substitution and Factor-Augmentation at the Industry Level," Working Papers 10-06, Department of Economics, West Virginia University.
  • Handle: RePEc:wvu:wpaper:10-06
    as

    Download full text from publisher

    File URL: http://be.wvu.edu/phd_economics/pdf/10-06.pdf
    File Function: First version, 2010
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Klump, Rainer & McAdam, Peter & Willman, Alpo, 2008. "Unwrapping some euro area growth puzzles: Factor substitution, productivity and unemployment," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 645-666, June.
    2. Robert Solow, 1964. "Capital, Labor, and Income in Manufacturing," NBER Chapters,in: The Behavior of Income Shares: Selected Theoretical and Empirical Issues, pages 101-142 National Bureau of Economic Research, Inc.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Robert S. Chirinko, 2008. "ó: The Long And Short Of It," CESifo Working Paper Series 2234, CESifo Group Munich.
    5. Engen, Eric M. & Gravelle, Jane G. & Smetters, Kent, 1997. "Dynamic Tax Models: Why They Do the Things They Do," National Tax Journal, National Tax Association, vol. 50(3), pages 657-82, September.
    6. N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 74-79, January.
    7. 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.
    8. Ballard, Charles L. & Fullerton, Don & Shoven, John B. & Whalley, John, 2009. "A General Equilibrium Model for Tax Policy Evaluation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226036335.
    9. Behrman, Jere R, 1972. "Sectoral Elasticities of Substitution between Capital and Labor in a Developing Economy: Time Series Analysis in the Case of Postwar Chile," Econometrica, Econometric Society, vol. 40(2), pages 311-326, March.
    10. Edward J. Balistreri & Christine A. McDaniel & Eina Vivian Wong, 2003. "An Estimation of U.S. Industry-Level Capital-Labor Substitution," Computational Economics 0303001, EconWPA.
    11. Vern Caddy, 1976. "Empirical Estimation of the Elasticity of Substitution : A Review," Centre of Policy Studies/IMPACT Centre Working Papers op-09, Victoria University, Centre of Policy Studies/IMPACT Centre.
    12. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    13. 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.
    14. Chirinko, Robert S., 2008. "[sigma]: The long and short of it," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 671-686, June.
    15. Berndt, Ernst R, 1976. "Reconciling Alternative Estimates of the Elasticity of Substitution," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 59-68, February.
    16. H. Uzawa, 1961. "Neutral Inventions and the Stability of Growth Equilibrium," Review of Economic Studies, Oxford University Press, vol. 28(2), pages 117-124.
    17. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, March.
    18. Caballero, Ricardo J, 1994. "Small Sample Bias and Adjustment Costs," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 52-58, February.
    19. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557-557.
    20. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 1-54.
    21. Balistreri, Edward J. & McDaniel, Christine A. & Wong, Eina Vivian, 2003. "An estimation of US industry-level capital-labor substitution elasticities: support for Cobb-Douglas," The North American Journal of Economics and Finance, Elsevier, vol. 14(3), pages 343-356, December.
    22. N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 112-117, January.
    23. Engen, Eric M. & Gravelle, Jane G. & Smetters, Kent, 1997. "Dynamic Tax Models: Why They Do the Things They Do," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(3), pages 657-682, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:bla:metroe:v:68:y:2017:i:4:p:730-776 is not listed on IDEAS
    2. Lopez, Ramon E. & Yoon, Sang Won, 2013. "Sustainable Economic Growth: Structural Transformation with Consumption Flexibility," Working Papers 142561, University of Maryland, Department of Agricultural and Resource Economics.
    3. Judzik, Dario, 2014. "Heterogeneous labor demand: sectoral elasticity and trade effects in the U.S., Germany and Sweden," MPRA Paper 62768, University Library of Munich, Germany.
    4. repec:eee:poleco:v:52:y:2018:i:c:p:18-35 is not listed on IDEAS
    5. Lawrence Robert Z., 2015. "Recent Declines in Labor's Share in U.S. Income: A Preliminary Neoclassical Account," Working Paper Series rwp15-034, Harvard University, John F. Kennedy School of Government.
    6. Chen, Xi, 2017. "Biased Technical Change, Scale, And Factor Substitution In U.S. Manufacturing Industries," Macroeconomic Dynamics, Cambridge University Press, vol. 21(02), pages 488-514, March.
    7. André Cieplinski, 2017. "Employee Control, Work Content and Wages," Department of Economics University of Siena 775, Department of Economics, University of Siena.
    8. Amilcar A. Menichini, 2017. "On the value and determinants of the interest tax shields," Review of Quantitative Finance and Accounting, Springer, vol. 48(3), pages 725-748, April.
    9. Judzik, Dario & Sala, Hector, 2015. "The determinants of capital intensity in Japan and the US," Journal of the Japanese and International Economies, Elsevier, vol. 35(C), pages 78-98.
    10. Dongya Koh & Raül Santaeulàlia-Llopis, 2017. "Countercyclical Elasticity of Substitution," Working Papers 946, Barcelona Graduate School of Economics.
    11. Robert Z. Lawrence, 2015. "Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account," Working Paper Series WP15-10, Peterson Institute for International Economics.
    12. repec:taf:ecsysr:v:29:y:2017:i:3:p:385-417 is not listed on IDEAS
    13. Knoblach, Michael & Rößler, Martin & Zwerschke, Patrick, 2016. "The Elasticity of Factor Substitution Between Capital and Labor in the U.S. Economy: A Meta-Regression Analysis," CEPIE Working Papers 03/16, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    14. Igor Fedotenkov, 2016. "Labour Shares, Fertility and Longevity in an OLG model," Bank of Lithuania Working Paper Series 28, Bank of Lithuania.

    More about this item

    Keywords

    elasticity of substitution; factor-augmenting technical change; labor-augmenting technical change; capital-augmenting technical change; corporate taxation; industry-level studies;

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wvu:wpaper:10-06. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Josh Hall). General contact details of provider: http://edirc.repec.org/data/dewvuus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.