Capital-Labor Substitution, Structural Change and the Labor Income Share
Francisco Alvarez-Cuadrado (),
Ngo Long and
Markus Poschke ()
No 4600, CESifo Working Paper Series from CESifo Group Munich
Long run economic growth goes along with structural change. Recent work has identified explanatory factors on the demand side (non-homothetic preferences) and on the supply-side, in particular differential productivity growth across sectors and differences in factor proportions and capital deepening. This paper documents that there have also been differential trends in labor and capital income shares across sectors in the U.S. and in a broad set of other industrialized economies, and shows that a model where the degree of capital-labor substitutability differs across sectors is consistent with these trends. The interplay of differences in productivity growth and in the substitution elasticity across sectors drive both the evolution of sectoral factor income shares and the shape of structural change. We evaluate the empirical importance of this mechanism and the other mechanisms proposed in the literature in the context of the recent U.S. experience. We find that differences in productivity growth rates between manufacturing and services have been the most important driver of structural change. Yet, differences in substitution elasticities are key not only for understanding the evolution of sectoral and aggregate factor income shares, but also for the shape of structural change. Differences in capital intensity and non-homothetic preferences have hardly mattered for the manufacturing-services transition.
Keywords: structural change; labor income share; capital-labor substitution (search for similar items in EconPapers)
JEL-codes: O40 O41 O30 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Journal Article: Capital-labor substitution, structural change and the labor income share (2018)
Working Paper: Capital-Labor Substitution, Structural Change and the Labor Income Share (2015)
Working Paper: Capital Labor Substitution, Structural Change, and the Labor Income Share (2014)
Working Paper: Capital-Labor Substitution, Structural Change and the Labor Income Share (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4600
Access Statistics for this paper
More papers in CESifo Working Paper Series from CESifo Group Munich Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().