2023 KLEIN LECTURE—CAPITAL AND WAGES

Daron Acemoglu

International Economic Review, 2025, vol. 66, issue 1, 3-24

Abstract: Does capital accumulation increase labor demand and wages? Neoclassical production functions, where capital and labor are q‐complements, ensure that the answer is yes, so long as labor markets are competitive. This result critically depends on the assumption that capital accumulation does not change the technologies being developed and used. I adapt the theory of endogenous technological change to investigate this question when technology also responds to capital accumulation. I show that there are strong parallels between the relationship between capital and wages and existing results on the conditions under which equilibrium factor demands are upward‐sloping (e.g., Acemoglu, Econometrica 75(5) (2007), 1371–410). Extending this framework, I provide intuitive conditions and simple examples where a greater capital stock leads to lower wages, because it triggers more automation. I then offer an endogenous growth model with a menu of technologies where equilibrium involves choices over both the extent of automation and the rate of growth of labor‐augmenting productivity. In this framework, capital accumulation and technological change in the long run are associated with wage growth, but an increase in the saving rate increases the extent of automation, and initially reduces the wage rate and can subsequently depress its long‐run growth rate.

Date: 2025
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/iere.12733

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:iecrev:v:66:y:2025:i:1:p:3-24

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0020-6598

Access Statistics for this article

International Economic Review is currently edited by Michael O'Riordan and Dirk Krueger

More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().