Marx-Biased Technical Change and the Neoclassical View of Income Distribution

Abstract

This paper empirically tests two competing views about capital–labour substitution at the aggregate level in capitalist economies: the classical model with Marx-biased technical change versus the neoclassical model. Following Foley and Michl (1999), the classical viability condition of technical change is used to draw out two different hypotheses about the profit share in national income corresponding to the two competing models. A stochastic version of the viability condition is empirically tested with data from the Extended Penn World Tables 2.1 using a simple cross-country estimation strategy. It is found that the data overwhelmingly rejects the neoclassical theory.