A non-scale-directed technical change model with endogenous labor share

Óscar Afonso and Pedro Lima

Applied Economics, 2020, vol. 52, issue 59, 6416-6431

Abstract: We extend a directed technical change (DTC) model without scale effects that allows labour share to vary over time. By decomposing the labour share by sectors, skilled and unskilled, and, in line with the empirical evidence, by considering a lower value in the skilled sector, we show that: (i) both the technological-knowledge bias per worker, the skill premium and the relative importance of the skilled sector continue to increase over time until the steady state, as in the baseline model; (ii) the labour share falls over time due to a combination of an increased importance and a lower labour share in the skilled sector; (iii) by considering endogenous labour supply, a relative increase in skilled labour also decreases the labour share during the transitional dynamics.

Date: 2020
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DOI: 10.1080/00036846.2020.1795073

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