Endogenous Education and Long-Run Factor Shares

Gene Grossman, Elhanan Helpman, Ezra Oberfield and Thomas Sampson

No 27031, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the determinants of factor shares in a neoclassical environment with capital- skill complementarity and endogenous education. When more physical capital raises the marginal product of skills relative to that of raw labor, an increase in a broad measure of embodied human capital raises the capital share in national income for any given rental rate. When education is chosen optimally, a dynamic equilibrium is characterized by an inverse relationship between the level of human capital and both the rental rate on capital and the difference between the interest rate and the growth rate of wages. As a consequence, estimates of the elasticity of substitution that fail to account for levels of human capital will be biased upward. We develop a model with overlapping generations, ongoing increases in educational attainment, and technology-driven neoclassical growth, and show that for a class of production functions with capital-skill complementarity, a balanced growth path exists and is characterized by an inverse relationship between the rates of capital- and labor-augmenting technological progress and the capital share in national income.

JEL-codes: E25 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-gen, nep-gro, nep-mac and nep-ore
Note: EFG
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Citations: View citations in EconPapers (2)

Published as Gene M. Grossman & Elhanan Helpman & Ezra Oberfield & Thomas Sampson, 2021. "Endogenous Education and Long-Run Factor Shares," American Economic Review: Insights, American Economic Association, vol. 3(2), pages 215-232, June.

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Journal Article: Endogenous Education and Long-Run Factor Shares (2021)
Working Paper: Endogenous education and long-run factor shares (2021)
Working Paper: Endogenous Education and Long-Run Factor Shares (2020)
Working Paper: Endogenous Education and Long-Run Factor Shares (2020)
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