Micro Data and Macro Technology

49 Pages Posted: 8 Sep 2014 Last revised: 21 May 2021

See all articles by Ezra Oberfield

Ezra Oberfield

Princeton University

Devesh Raval

University of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: September 2014

Abstract

We develop a framework to estimate the aggregate capital-labor elasticity of substitution by aggregating the actions of individual plants, and use it to assess the decline in labor's share of income in the US manufacturing sector. The aggregate elasticity reflects substitution within plants and reallocation across plants; the extent of heterogeneity in capital intensities determines their relative importance. We use micro data on the cross-section of plants to build up to the aggregate elasticity at a point in time. Our approach places no assumptions on the evolution of technology, so we can separately identify shifts in technology and changes in response to factor prices. We find that the aggregate elasticity for the US manufacturing sector has been stable since 1970 at about 0.7. Mechanisms that work solely through factor prices cannot account for the labor share's decline. Finally, the aggregate elasticity is substantially higher in less-developed countries.

Suggested Citation

Oberfield, Ezra and Raval, Devesh, Micro Data and Macro Technology (September 2014). NBER Working Paper No. w20452, Available at SSRN: https://ssrn.com/abstract=2492963

Ezra Oberfield (Contact Author)

Princeton University ( email )

Princeton, NJ 08544-1021
United States

Devesh Raval

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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