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Variable markups and capital-labor substitution

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  • Jiang, Wei
  • León-Ledesma, Miguel

Abstract

We provide new estimates of the elasticity of capital-labor substitution (σ) and the bias in technical change allowing price markups to change over time as shown in De Loecker and Eeckhout (2017). Our estimate of σ is in the region of 0.8 and technical change is net capital-augmenting.

Suggested Citation

  • Jiang, Wei & León-Ledesma, Miguel, 2018. "Variable markups and capital-labor substitution," Economics Letters, Elsevier, vol. 171(C), pages 34-36.
    • Handle: RePEc:eee:ecolet:v:171:y:2018:i:c:p:34-36
    DOI: 10.1016/j.econlet.2018.07.011
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    References listed on IDEAS

    as
    1. Miguel A. León-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-1357, September.
    2. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    3. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 61-103.
    4. Miguel A. León-Ledesma & Peter McAdam & Alpo Willman, 2015. "Production Technology Estimates and Balanced Growth," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(1), pages 40-65, February.
    5. Michael Elsby & Bart Hobijn & Ayseful Sahin, 2013. "The Decline of the U.S. Labor Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 1-63.
    6. 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.
    7. Jan De Loecker & Jan Eeckhout & Gabriel Unger, 2020. "The Rise of Market Power and the Macroeconomic Implications [“Econometric Tools for Analyzing Market Outcomes”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 561-644.
    8. repec:oup:qjecon:v:129:y:2013:i:1:p:61-103 is not listed on IDEAS
    9. Jakub Mućk, 2017. "Elasticity of substitution between labor and capital: robust evidence from developed economies," EcoMod2017 10433, EcoMod.
    10. Paul Gomme & Peter Rupert, 2004. "Measuring labors share of income," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Nov.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Serrano-Quintero, Rafael, 2023. "The aggregate productivity slowdown: A system approach," Economics Letters, Elsevier, vol. 223(C).
    2. Vahagn Jerbashian, 2022. "On the Elasticity of Substitution between Labor and ICT and IP Capital and Traditional Capital," CESifo Working Paper Series 9989, CESifo.
    3. Kemnitz, Alexander & Knoblach, Michael, 2020. "Endogenous sigma-augmenting technological change: An R&D-based approach," CEPIE Working Papers 02/20, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    4. Agustin Velasquez, 2023. "Production Technology, Market Power, and the Decline of the Labor Share," IMF Working Papers 2023/032, International Monetary Fund.
    5. Danila Karpov, 2023. "Russia's Import Dependence and Estimated Consequences of Import Restrictions," Russian Journal of Money and Finance, Bank of Russia, vol. 82(1), pages 55-86, March.

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    More about this item

    Keywords

    Capital-labor substitution; Price markups; Biased technical change;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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