The Decline in Capital Efficiency and Labour Share

Fernando del Río and Francisco Lores ()

Economica, 2019, vol. 86, issue 344, 635-662

Abstract: We calibrate and simulate a neoclassical growth model with a variable elasticity of substitution production function and three types of technological change: labour‐augmenting, capital‐augmenting and investment‐specific. In this framework, we find that the decline in US labour share was caused by a large decline in capital efficiency, which led to a decrease in the ratio of effective capital to effective labour in a context in which capital and labour are gross complements. Moreover, the decline in the relative price of investment contributed to reducing the fall in US labour share, while the increase in the economic depreciation rate of US fixed assets accounted for a small reduction in US labour share.

Date: 2019
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