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

52 Pages Posted: 5 Dec 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 - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Ezra Oberfield

Princeton University

Thomas Sampson

London School of Economics & Political Science (LSE)

Multiple version iconThere are 3 versions of this paper

Date Written: October 30, 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 à la Ben Porath (1967) and capital-skill complementarity à 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: neoclassical growth, balanced growth, technological progress, capital-skill complementarity, labor share, capital share

JEL Classification: O400

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 (October 30, 2017). CESifo Working Paper Series No. 6714. Available at SSRN: https://ssrn.com/abstract=3082074

Gene M. Grossman

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

300 Fisher Hall
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Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
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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 - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-4690 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ezra Oberfield

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

Thomas Sampson (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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