Can Capital Deepening Explain the Global Decline in Labor's Share?

38 Pages Posted: 18 May 2017

See all articles by Andrew S. Glover

Andrew S. Glover

University of Texas at Austin

Jacob M. Short

University of Western Ontario

Date Written: May 17, 2017

Abstract

We estimate that a unitary aggregate elasticity of substitution between capital and labor is economically and statistically consistent with cross-country data – capital deepening cannot explain the global decline in labor’s share. Our methodology derives from inter-steady-state transitions in the Neo-Classical growth model. The elasticity of substitution is identified from the correlation between trends in labor’s share, investment prices, and consumption growth across countries. We show that previous estimates of this elasticity from international data are biased upwards because they omitted a theoretically and empirically important term related to consumption growth.

Keywords: Elasticity of Substitution, Labor Share, Investment Prices

JEL Classification: E21, E22, E25

Suggested Citation

Glover, Andrew S. and Short, Jacob M., Can Capital Deepening Explain the Global Decline in Labor's Share? (May 17, 2017). Available at SSRN: https://ssrn.com/abstract=2970250 or http://dx.doi.org/10.2139/ssrn.2970250

Andrew S. Glover

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Jacob M. Short (Contact Author)

University of Western Ontario ( email )

London, Ontario N6A 5B8
Canada
5196612111 (Phone)

HOME PAGE: http://www.jacobmshort.com

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