The Falling Rate of Profit under Fixed Capital and Stable Labor Shares

Jiyuan Lyu

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Abstract: This paper incorporates fixed capital into a multi-sectoral input-output model to reassess the Okishio Theorem. We establish the existence of a critical wage elasticity strictly less than unity, beyond which cost-reducing technical progress leads to a declining equilibrium rate of profit. This implies that profit rates may fall even under Kaldor's Stylized Facts or a moderately declining labour share, significantly extending the theorem's domain of validity. Game-theoretic analysis reveals a strict Prisoner's Dilemma structure underlying technical adoption. Empirical evidence from Chinese industrial data confirms that fixed capital intensity exerts a significant dampening effect on the profit-enhancing impact of productivity growth.

Date: 2025-09, Revised 2026-03
New Economics Papers: this item is included in nep-gro and nep-hme
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