Why labor income shares seem to be constant?

Hernando Zuleta

No 3779, Documentos de Trabajo from Universidad del Rosario

Abstract: The common assumptions that labor income share does not change over time or across countries and that factor income shares are equal to the elasticity of output with respect to factors have had important implications for economic theory. However, there are various theoretical reasons why the elasticity of output with respect to reproducible factors should be correlated with the stage of development. In particular, the behavior of international trade and capital flows and the existence of factor saving innovations imply such a correlation. If this correlation exists and if factor income shares are equal to the elasticity of output with respect to factors then the labor income share must be negatively correlated with the stage of development. We propose an explanation for why labor income share has no correlation with income per capita: the existence of a labor intensive sector which produces non tradable goods.

Keywords: Factor Income Shares; Elasticity of output with respect to factors; two sector model (search for similar items in EconPapers)
JEL-codes: E1 F0 O0 O4 (search for similar items in EconPapers)
Pages: 14
Date: 2007-03-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:003779

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