Appropriate Technology and the Labour Share

Miguel Leon-Ledesma and Mathan Satchi ()

Studies in Economics from School of Economics, University of Kent

Abstract: We provide a general theoretical characterization of how technology choice affects the long-run elasticity of substitution between capital and labour. While the shape of the technology frontier determines the long-run growth path and the long-run elasticity, adjustment costs in technology choice allow capital labour complementarity in the short run. We develop a class of production functions that are consistent with balanced growth even in the presence of permanent investment-specific or other kinds of biased technical progress but where, consistent with empirical evidence, short-run dynamics are characterized by complementarity. Importantly, the approach is easily implementable and yields a powerful way to introduce CES-type production functions in macroeconomic models. We provide an illustration within an estimated dynamic general equilibrium model and show that the use of the new production technology provides a good match for the short and medium run behavior of the US labour share.

Keywords: Balanced growth; appropriate technology; elasticity of substitution (search for similar items in EconPapers)
JEL-codes: E25 O33 O40 (search for similar items in EconPapers)
Date: 2015-03, Revised 2016-11
New Economics Papers: this item is included in nep-gro and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://www.kent.ac.uk/economics/repec/1505.pdf First version, 2015 (application/pdf)
https://www.kent.ac.uk/economics/repec/1614.pdf Revised version, 2016 (application/pdf)

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