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Capital-Labor Substitution, Structural Change and the Labor Income Share

Francisco Alvarez-Cuadrado (), Ngo Long and Markus Poschke ()

No 8941, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Recent work has documented declines in the labor income share in the United States and beyond. This paper documents that these trends differ between manufacturing and services 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. We calibrate the model exploiting additional information on the pace of structural change from manufacturing to services, on which the model also has predictions. We then conduct a decomposition to establish the relative importance of several potential drivers of changes in factor income shares and structural change that have been proposed in the literature. This exercise reveals that differences in productivity growth across sectors, combined with differences in substitution possibilities, have been the main driver of both changes in the labor income share and structural change.

Keywords: labor income share; capital-labor substitution; structural change (search for similar items in EconPapers)
JEL-codes: O40 O30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff and nep-gro
Date: 2015-03
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Published in: Journal of Economic Dynamics and Control, 2018, 87, 206-231

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Related works:
Journal Article: Capital-labor substitution, structural change and the labor income share (2018) Downloads
Working Paper: Capital-Labor Substitution, Structural Change and the Labor Income Share (2014) Downloads
Working Paper: Capital Labor Substitution, Structural Change, and the Labor Income Share (2014) Downloads
Working Paper: Capital-Labor Substitution, Structural Change and the Labor Income Share (2014) Downloads
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