Capital Augmenting Technical Change and Time-Varying Labor Share
40 Pages Posted: 18 Feb 2013
Date Written: February 16, 2013
Abstract
We construct a hybrid model of endogenous and semi-endogenous growth to reconcile medium-run changes with long-run constancy of the labor share. Given the fixed population size, endogenous growth in the labor intensive sector implies that labor augmenting technical change could take place at a positive constant rate in the long-run, whereas capital augmenting technical change could only take place during transitional dynamics owing to semi-endogenous growth in the capital intensive sector. The time-varying labor share in the medium-run is the direct result of capital augmenting technical change. Nevertheless, purely labor augmenting technical change in the steady state implies that the labor share must be stable in the long-run.
Keywords: Biased Technical Change, Endogenous Growth, Labor Share, Lucas Paradox, Semi-endogenous Growth
JEL Classification: O41, O33, O31, E25
Suggested Citation: Suggested Citation
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