The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration

53 Pages Posted: 4 Oct 2017 Last revised: 9 Oct 2017

See all articles by Gene M. Grossman

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Elhanan Helpman

Harvard University

Ezra Oberfield

Princeton University

Thomas Sampson

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Multiple version iconThere are 3 versions of this paper

Date Written: September 2017

Abstract

We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation a la Ben Porath (1967) and capital-skill complementarity a la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early postwar period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the U.S. labor share.

Keywords: balanced growth, capital share, capital-skill complementarity, Labor Share, neoclassical growth, technological progress

Suggested Citation

Grossman, Gene M. and Helpman, Elhanan and Oberfield, Ezra and Sampson, Thomas, The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration (September 2017). CEPR Discussion Paper No. DP12342. Available at SSRN: https://ssrn.com/abstract=3047329

Gene M. Grossman (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

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Princeton University - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Elhanan Helpman

Harvard University

Ezra Oberfield

Princeton University ( email )

Princeton, NJ 08544-1021
United States

Thomas Sampson

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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