Factor Substitution Possibilities, Labor Share Dynamics, and Inequality in an Age of Intangibles

Adnan Velic

No tep0723, Economic Papers from Trinity College Dublin, Economics Department

Abstract: We examine the economy-wide degree of substitutability between intangible capital and other factor inputs in production using a large sample of advanced countries. In this context, we turn to studying the implications of intangible and tangible capital growth for labor income share dynamics. Compared to tangible capital, we find that intangible capital more strongly complements skilled labor. The analysis further indicates relative fungibility between tangible capital and a composite of intangible capital and skilled labor, in line with the rising prominence of knowledge-intensive tasks and AI-driven online platforms. The intrinsic nature of intangibles and their asymmetric effects across skilled and unskilled labor productivity based on our substitution elasticities suggest that intangible capital growth increases income inequality more aggressively.

Keywords: factor substitution; skills; laborincomeshares; (in)tangiblecapital; incomeinequality; management; productivity; growth (search for similar items in EconPapers)
JEL-codes: E2 J2 J3 O3 O4 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2023-04
New Economics Papers: this item is included in nep-eff, nep-knm and nep-lma
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https://www.tcd.ie/Economics/TEP/2023/TEP0723.pdf

Related works:
Journal Article: Factor Substitution Possibilities, Labor Share Dynamics, and Inequality in an Age of Intangibles (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduee:tep0723

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