On the Positive Relation between the Wage Share and Labor Productivity Growth with Endogenous Size and Direction of Technical Change

Luca Zamparelli

No 4/23, Working Papers from Sapienza University of Rome, DISS

Abstract: This paper combines induced innovation and endogenous growth to investigate two issues: the relation between the wage share and labor productivity growth and the potential influence of the saving rate on the steady state wage share. We assume that myopic competitive firms choose the size and direction of technical change to maximize the growth rate of profits. First, we find a condition on the innovation possibility set sufficient to ensure that labor productivity growth is a positive function of the wage share. Second, we show that the steady state wage share depends on the saving rate if, and only if, R&D investment affects the marginal rate of transformation between labor and capital productivity growth. Both results have important policy implications as they clarify under what conditions any factor affecting the wage share or the saving rate will have an impact on labor productivity growth or steady-state income distribution.

Keywords: Induced innovation; R&D; Factors income shares; Growth models (search for similar items in EconPapers)
JEL-codes: D24 D33 E25 O30 O41 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-gro and nep-tid
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Journal Article: On the positive relation between the wage share and labor productivity growth with endogenous size and direction of technical change (2024)
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