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Technical Change, Income Distribution, and Profitability in Multisector Linear Economies

Weikai Chen ()
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Weikai Chen: Department of Economics, University of Massachusetts Amherst

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: This paper analyzes the effect of technical change on income distribution and profitability by comparing the long-run outcomes defined by a uniform profit rate in a multisector linear economy. We study three scenarios with (i) fixed real wage; (ii) fixed profit rate; or (iii) fixed wage-profit ratio, and show that any viable capital-using and labor-saving technical change itself (in the absence of power change) would bring about a fall in the rate of profit. Profit rate would not rise unless the technical change is so power-biased against the working-class that the wage-profit ratio can not be maintained. Our result conclusively supports the argument of the falling rate of profit due to a rising organic composition of capital as an underlying economic force.

Keywords: Technical Change; Falling Rate of Profit; Okishio Theorem (search for similar items in EconPapers)
JEL-codes: B51 D33 D5 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-hme
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